Elme Communities (ELME) 2015 Q1 法說會逐字稿

Welcome to the Washington Real Estate Investment Trust First-Quarter 2015 Earnings conference call. As a reminder, today's call is being recorded.

Before turning over the call to the Company's President and Chief Executive Officer, Paul McDermott, Tejal Engman, Director of Investor Relations, will provide some introductory information.

Ms. Engman, please go ahead.

Thank you.

Good morning, everyone. I am Tejal Engman, Washington REIT's new Director of Investor Relations; and it's a pleasure to be here. 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 202-774-3253; or you may access the document from our website at www.washreit.com.

Our conference call today will contain financial measures, such as core FFO and NOI, that are non-GAAP measures as defined in Reg G. Please refer to the definitions found in our most recent financial supplement. 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 8 to 22 of our Form 10-K for a complete (inaudible) disclosure.

Participating in today's call with me will be Paul McDermott, President and Chief Executive Officer; Steve Riffee, Executive Vice President and Chief Financial Officer; Tom Bakke, Executive Vice President and Chief Operating Officer; Laura Franklin, Executive Vice President and Chief Accounting and Administrative Officer; and Kelly Shiflett, Director of Finance.

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

Thank you, Tejal.

Good morning, everyone. Thanks for joining us on our First-Quarter 2015 Earnings conference call. Overall, Washington REIT made steady progress on our strategic plan in the first quarter. To recap, we ended last year by substantially reducing the rollover risk in our portfolio with the successful renewal of the World Bank and Booz Allen leases.

Moving onto this quarter, we delivered core FFO of $0.38 per share, thereby achieving year-over-year core FFO growth of 5.6% and same-store cash NOI growth of 7.2%. The first quarter was impacted by a second consecutive winter of record levels of snow in the DC area. Where an unusually large number of adverse weather incidents led to significantly higher-than-expected expenses. That said, our operations remain on track, and we're working hard to continue to outperform within each of our sub markets.

Now I would like to begin with a reiteration of our disciplined approach to originating opportunities that create value for our shareholders, followed by a discussion of our quarterly operations and leasing progress within the context of the broader market. We continue to strategically reposition our office and multifamily portfolios towards higher quality assets in urban infield locations with strong transportation lengths. And our retail portfolio toward higher quality assets in strong neighborhood centers with attractive demographics.

As I have emphasized on prior calls, in executing our strategy, we use value creation as our chief criterion. Legacy assets that have reached an inflexion point are earmarked for recycling and consequently prepared for sale. Existing assets with the potential to grow NOI, as well as acquisition targets, are evaluated by the potential to add compelling value.

In Office, value may be created by taking on lease-up risk that leveraged buyers will not pursue. In Multifamily, value creation might involve growing NOI through renovation. And in Retail, it may include expanding rentable space as planned for in our recent acquisition of the Spring Valley Retail Center. All opportunities are originated in conjunction with our in-house research platform that proactively identifies profitable market niches where Washington REIT is best positioned to create value.

While the Washington metro landscape remains challenging and, on the surface, appears to lack opportunities, our research is able to examine data beyond the sub market level and provide the granularity required to uncover value creation potential. It is these in-depth, microanalyses that enable us to proactively pursue deals often before they come to the market and that shape all of our portfolio repositioning decisions.

Three assets where we are currently working hard to create value for our shareholders are the Silverline Center in Tysons, The Maxwell in Arlington, and 1775 Eye Street in the Central Business District. After the redevelopment, we expect the Silverline Center to achieve rental rate and NOI increases and contribute $0.14 to $0.16 of annualized NOI per share when stabilized.

The Maxwell development project is expected to contribute annualized NOI of $0.04 to $0.05 per share when stabilized. 1775 Eye Street is an asset where we are currently 75% leased from 62% leased when acquired last year, and where we expect to reach a stabilized state by next year following an extensive renovation of the property.

With regard to future value creation opportunities, we will always use the best and most appropriate sources of capital available to us at the time. Presently, we see the recycling of assets not only as one of our top sources of capital, but also a way to meet our strategic goal of improving the quality of our portfolio, while taking advantage of a climate that enables us to opportunistically transfer risk.

The best candidates for recycling are legacy assets that lack the continued income growth potential we seek and have maximized their value for shareholders. Our March 20 sale of Country Club Towers exemplifies our approach to asset recycling. This flat fee, 227-unit, highrise in Arlington, have been in our portfolio since 1969, and had reached an inflection point where we had to choose between investing substantial additional CapEx in the property or selling it.

We chose to do the latter because we felt our ability to create additional value from this asset was limited. We received multiple offers for Country Club Towers and sold it for $37.8 million. We were able to structure the sale as a reverse 1031 in connection with the Spring Valley Retail Center acquisition. The strong market reception for Country Club Towers has increased our confidence in our ability to further recycle our legacy portfolio, and dispositions remain an important cornerstone of our strategies.

Turning to acquisitions, in the current market, a good acquisition strategy is as much about what you don't do as what you do. As mentioned, our criteria for acquisitions is value creation. As a result, this year we have already evaluated and passed on several deals due to pricing. That said, we will continue to pursue certain opportunities that align with our plans for strategic growth.

Now I would like to address the performance of our three asset classes within the context of the overall DC market. In the Office market, we saw some improved activity levels in both the district and in the suburbs. But elevated vacancy grades across most sub markets have reinforced the longstanding high degree of competition in the marketplace.

We continue to see a divergence in the performance of quality, urban infill, metro-centric assets versus commodity products, as tenants continue to see quality office assets in urban locations that are Metro served and offer walkable amenities.

Although our portfolio continues to outperform most sub markets, we still see pressures on effective rents from large concession packages; and much of the activity is from forward-leasing for large expirations 18 to 24 months out. This remains especially true in the District.

Our strategy is to compete aggressively for deals in our projects undergoing lease ups, such as the Silverline Center and 1775 Eye Street. We maintain a relentless focus on tenant retention and the ability to strategically push rents higher when appropriate to do so.

Overall employment in DC remains strong and has led to improved consumer confidence, thus providing solid foot traffic and strong sales for retailers in the area. Our retail portfolio continues to perform steadily, benefiting from the strong demographics in this region.

Our ability to push rents higher on renewals has improved as the climate for retailers improves. Additionally, we have been able to upgrade the credit quality and the overall tenant mix in several of our centers over the past two quarters.

Our Multifamily portfolio continues to be impacted by supply pressures from record-setting deliveries in the area. Thanks to recent trends favoring renting versus owning, absorption levels have been equally strong. But the ability to increase rents has been limited due to the overall competitiveness of the market. This has impacted minimum rents in the first quarter in several assets where we have to compete with new supply, primarily in the Mount Vernon and Shaw sub markets.

Overall, our portfolio has reached a degree of stabilization across the board, with the exception of development and redevelopment assets that are in various stages of lease up. As stated previously, our focus is on tenant retention and improving operating margins while driving rents higher where possible. This, along with the pursuit of new value creation opportunities, will continue to be our priorities for the remainder of 2015.

Now I'd like to turn the call over to Steve to discuss our financial and operating performance.

Thanks, Paul.

Good morning, everyone. First-quarter core FFO per share increased 5.6% to $0.38, compared to $0.36 per share in the first quarter of 2014. Same-store cash NOI increased 7.2% over the prior year.

Same-store cash rents increased 120 basis points year over year, and the same-store physical occupancy was 92.9% at the end of the quarter. Core funds available for distribution, or FAD, was $0.33 per share. For the full year, we expect that we will cover our dividend with that.

Our first quarter core FFO of $0.38 per share was impacted by heavier-than-anticipated seasonal expenses related to higher snow removal and utility costs, as well as a decrease in straight line revenues as a result of resetting a few leases, including the Booz Allen lease in Tysons. This lease was renewed at the end of the year and significantly reduced leasing risk in our Office portfolio.

In addition, in the first quarter, we've also absorbed $0.01 a share of higher real estate taxes, primarily in DC. By way of background, we anticipate seasonality in the first quarter when expenses are customarily higher during the winter months. Snow incidences this year, however, were higher than expected and disproportionately impacted several big box retail centers where our expense recovery rates are the lowest. The net impact of this lowered our core FFO by more than $0.01 per share for the quarter.

Seasonality in our portfolio is also driven by the Multifamily division, which typically experiences slower leasing momentum and weaker rental rates in the first quarter relative to the remainder of the year. Going forward, we expect to see seasonal strength in the Multifamily portfolio drive core FFO per share higher in the second and third quarters. The Maxwell is expected to increase leasing in the non, same-store Multifamily portfolio. And the Silverline Center will benefit our non same-store Office portfolio as it leases up.

As I mentioned, same-store cash NOI grew 7.2% year over year, driven by Office's 9.3% and Retail's 7.1% stronger year-over-year same-store growth. Multifamily cash NOI grew 1.5% year over year.

In the Office division, same-store physical occupancy grew 430 basis points over the past year, but declined 90 basis points from last quarter with our own move out of the 6110 Executive Boulevard offices, having the largest negative impact on same-score occupancy relative to year end. The same-store pool is approximately 92.5% leased and 91.2% occupied. Overall Office occupancy has improved by 300 basis points year over year and stands at 86.7%.

Regionally, our same-store Washington DC office portfolio is outperforming its sub market with a vacancy rate of around 3% versus the sub market at 11%. Our Office portfolio is also outperforming in suburban Maryland and Northern Virginia where our same-store vacancy rates are 6% and 10% below the vacancies in those markets.

Office leasing for the quarter totaled approximately 196,000 square feet, with 61,000 square feet driven by new leases signed in the quarter. For renewals, we have experienced a 7.7% improvement in GAAP and a modest 2.2% roll down in cash rent spreads, and continue to see double-digit growth in GAAP rents and modestly negative cash spreads for new leases.

Retail same-store cash NOI increased 7.1% year over year, and occupancy improved by 110 basis points. We leased approximately 122,000 square feet in our Retail portfolio. We have approached stabilization in Retail, which is currently 94.7% occupied on a same-score and overall basis. Retail GAAP rent increases were 27% for new leases and 5.7% for renewals. Cash spreads are in positive double digits for new leases and (inaudible) is slightly negative for renewals.

Multifamily same-store cash NOI was up 1.5% year over year, as occupancy gains over the prior year more than offset the higher weather-related expenses and the quarterly rent roll downs that we typically see in this division in the first quarter. Multifamily same-store occupancy improved 160 basis points year over year and stands at 94.1%. Overall occupancy is at 89.5%.

Turning to the non same-store portfolio, our most significant opportunities to grow NOI through lease-up remains at Silverline Center and The Maxwell. These represent clear examples where we will create value through redevelopment and development, and demonstrate our ability to execute our strategy.

The Silverline redevelopment was substantially completed this quarter, and we are already seeing healthy leasing momentum for this newly-positioned as a Class A office property. With 50,000 square feet of new leases signed for this redevelopment, we are on track to lease up in 2016.

The Maxwell, a new Class A,163-unit multifamily development located within walking distance of the Boylston Metro in Arlington, is 30% leased and expected to stabilize by year-end.

Now turning to guidance, while our first-quarter results were approximately $0.02 below our expectations, largely due to higher-than-expected seasonal costs, we reaffirmed our full-year core FFO guidance range of $1.66 to $1.74 per share. Previously, although we provided guidance for acquisition volume, due to the assumed timing of those acquisitions for the latter part of the year and the corresponding modeled capital costs, they do not have a significant impact on our initial guidance range.

As Paul said, we will continue to pursue value-add opportunities and match them with the best sources of capital. Recycling of assets will continue to be an important source of capital and a tool to improve the quality of the portfolio as we demonstrated through our sale of Country Club Towers this quarter.

Our current models assume that a lower level of acquisitions is completed this year. And they can be funded with proceeds from recycling legacy assets and long-term debt. Overall, same-store growth assumptions now range between negative 0.5% to positive 2%, which is unchanged at the top end, but is modestly lower at the bottom end to account for some of the weather-related headwinds that we faced in the first quarter.

Finally, I'd like to discuss our likely upcoming capital plans. I've spent a large part of my first weeks assessing and planning for ongoing capital needs. As a result, we will be renewing, extending, and updating our credit facilities and liquidity arrangements and expect to improve pricing and expand terms as current market conditions should allow.

Considering stock prices, we have no immediate plans to issue equity. However, because our existing ATM program is about to expire, we are likely to establish a renew program for possible future use when it would be an appropriate source of capital.

In May, we plan to repay our maturing $150 million. 5.35% bonds by initially drawing on our credit facility, and then plan to term that out in subsequent quarters as we build a use of proceeds to support an index-eligible bond offering. We will work to continue to strengthen the balance sheet over time and maintain access to all sources of capital.

And with that, I will now turn the call back over to Paul.

Thank you, Steve.

To conclude, our unwavering focus on value creation will demonstrate that in spite of a challenging market, we continue to originate opportunities that drive internal and external growth through a financially-disciplined and research-driven process. If anything, the competitive metro market has honed our ability to capitalize on untapped value in our assets.

The Silverline redevelopment and repositioning, for example, has enabled us to achieve rents in the high $30s per foot, versus the high $20s per foot prior to the redevelopment, thus achieving a 9% return on costs. Our existing portfolio offers other mining opportunities that we are currently in the process of evaluating.

When it comes to acquisitions, our focus remains on value accretion, which will typically lead us to deals that leveraged buyers find difficult to underwrite. As always, we remain committed to bypass deals where we don't see the scope to add compelling value.

Furthermore, the positive market reception we received on Country Club Towers has increased the internal focus to recycle certain legacy assets as their sale provides both a currently attractive source of capital for our growth, as well as a means to improve the quality of our portfolio.

Our performance in the first quarter reflects strong year-over-year improvement across our operation. We are working hard to grow earnings with a steady focus on the efficient leasing up of Silverline Center, The Maxwell, and 1775 Eye Street, as well as the continued successful execution of our strategic plan.

Finally, I would like to mention that for the first time in the history of Washington REIT, we have appointed a dedicated resource for Investor Relations, with the goal of better serving the needs of our existing shareholders as well as sell side analysts and extending our reach to a broader base of rededicated institutional investors. Tejal Engman joins us from the sell side, where she was a Vice President of the Institutional Equities Division at Deutsche Bank.

Now we would like to open the call to answer your questions.

(Operator Instructions)

Our first question is coming from the line of Michael Lewis with SunTrust.

I was wondering if you could just elaborate a little bit on what you're looking for in terms of acquisitions in terms of property type, location, and what the yields on those opportunities might look like.

Sure, Michael.

In terms of what property types we are looking at, we're really looking at all three property types right now. I think that the most compelling cases right now are value-added opportunities that we mentioned in our narrative.

Specifically, I think in the Office sector, we have certain sub markets we've identified that we're willing to take on specific leasing risks, such as the risk that we took on when we acquired 1775 Eye Street. In the Multifamily sector, we still like the renovation program that we have successfully proven worked over the past 18 to 24 months. I think our average return on cost has been somewhere between 8% to12% on renovated units.

And in the Retail sector, sub market by sub market, we like models such as the Spring Valley Retail Center, where there is an opportunity to add additional FAR and increase our NOI. We're obviously trying to exceed our cost to capitals going in. Cap rates from all three of those assets will vary, depending on either the current occupancy level or the current level of CapEx needs that we expect to put in over the duration period.

Thanks.

And then a quick balance sheet question. You mentioned how you're going to handle the $150 million of maturities this year. Not to get too far ahead of myself, but there's about $160 million of secured due next year. And I was just wondering if you think you may refi that and maybe pull proceeds out, or if maybe you would wrap that into a bond offering later on?

Michael, this is Steve.

One of the things I have done that's even longer term is evaluate a few of the capital assumptions. I've also have been working with things that I immediately have to address. I think there's a tremendous opportunity for us over the next three years, starting with this year, to term out debt, which I think is the right thing to do.

I think that what's coming up after this year is about $160 million and then something similar the following year. Most of that is secured debt. So I think I see an opportunity for that to be the foundation of three years in a row, possibly, of index-eligible bonds increasing some liquidity for our bondholders in the market. I think pushing out our debt ladder in a very healthy way, and also improving our unencumbered ratios [in] all as a Company. So I think that plus growth in each of the years ought to probably get us to index-eligible bond offerings.

Great, thank you.

Our next question is coming from the line of Brendan Maiorana.

Steve, I wanted to understand a little bit more in terms of the balance sheet outlook. And so you mentioned payoff the $150 million upon maturity in May; you want do index-eligible. But it sounds like acquisitions are likely to be funded from dispositions.

I think you've got $40 million or so of cash on the balance sheet. There's not too much more spend left at Silverline. What would be the other uses of capital to get you up where you'd be able to do an index-eligible bond later this year?

Well, let me go ahead and address that part of our guidance because we left pretty much everything in place. The two pieces that I spoke to earlier that we changed are the acquisition guidance and the funding of it. And then just to recognize the impact of the first quarter, we took the low end of the same-store down 50 basis points; so left the high end the same.

So dealing with the moving capital related to acquisitions, we're saying that we're going to be about half of what we had previously guided before on the last call. It will be timed so that it's likely to occur in the second half of the year. And we're expecting to fund it with a combination of recycling assets and enough long-term debt to round out an index-eligible bond offering.

So after we pay off the bonds with the line in May, we'll have about $180 million outstanding on our credit facilities. So I'm telling you that I would expect about $70 million of that acquisition to be funded with enough debt to fill out an index-eligible bond offering.

And I'm currently modeling various ways that the proceeds from other dispositions will be the current play in the fund. The acquisitions that we think we have pretty good visibility are likely to happen at the levels that we projected in the second half of the year.

Okay. So if I think about that from a broad-strokes perspective in terms of the progression during the year, it sounds like maybe you would do a bond offering, late in the year. And if you picked up $150 million, moving from the maturity of the unsecured to the credit facility for six months or two quarters or so, it's probably about $0.04 for the year. And then you had some seasonally slow quarter in Retail and Multifamily this quarter. So that helps as you go throughout the year.

It sounds like from a leasing perspective, there's probably not a whole lot of upside baked into this year's numbers at Silverline or at 1775 Eye. Is that a fair way to think about it?

You commented on a lot of things, so let me see if I can dissect the various pieces. If I miss something, remind me, okay?

You're probably later that I'm assuming, but I don't want to be exact on timing of when the bond offering is. But you are right that there will be an interest benefit for the short time that the funding of the first bond maturity relative to when it can be termed down in the bond market is. So you're probably a little longer timeframe than I'm thinking in terms of that. But if it were to go that long, I think you're pretty close to what it could be.

You asked about Silverline and The Maxwell. We did not change the guidance for Silverline. So we're still expecting $0.06 to $0.08 of contribution from the Silverline NOI this year. And I'm not ready to give guidance for 2016, but we are saying it's stabilizing in 2016. So the numbers that Paul gave you are what's stabilized. So we'll be building up in 2016 also for further lease up on the Silverline.

And I think you touched on The Maxwell. We didn't change the guidance there. We expect it to have $0.02 to $0.03 of impact this year. And we're projecting reaching stabilization as we approach the end of the year.

Did I cover everything you asked?

Yes, that's great, thanks.

And then last one, probably for Paul. So Advisory Board that's been mentioned a few different times in press articles and the like, is there any update you can give us in terms of your discussions with them? I know their expiration is several years out; but if there's any update, that might be helpful.

Sure, Brendan.

We continue to have a fairly actionable dialogue with the Advisory Board. I think everybody knows that they went out to the market with an RFP. I think that people need to first take a step back and ask when the lease expires; the lease expires in 2019. And they can look at a lot of options; but the bottom line is, there is a rental obligation in place for the next four years.

Secondly, the difference between the top bidder -- per our Washington DC intelligence -- and us, we would probably be the low-cost provider since we have them in place and we have outlined and detailed a renovation plan for them. I think the MPV on that -- the number that I'm hearing-- is $300 million which, as a sitting CEO, I think that's a pretty eye-popping number in terms of OpEx.

I think that new development versus existing product, I think that they would like to maybe do something like Fannie Mae did. But the numbers probably have to be compelling enough because we've been pretty aggressive in our response to their RFP. And I think that you're basically looking at a scenario of as-is versus new development.

The Advisory Board has not made any decisions yet. I think their target is the back half of 2016 to try to come to a conclusion, and then they'll progress into negotiations. We still feel like we have a good opportunity as a low -cost provider that has a relationship with them and that we still have some other opportunities to negotiate with them.

But no decisions have been made by the Advisory Board, whatsoever. Anything to that point that you're hearing is 100% speculation on the brokerage community. I heard that rumor coming around two weeks ago after a tour that took place in Washington. And the broker that were on that bus, that was 100% speculation on his part.

Okay, no, that's great. And I know it's 2019, so we're more than four years away.

But just rough sense -- where rents in that building relative to market and TI packages, is it something where if there's a renewal or new tenant that goes in, are rents likely to move down in any meaningful way with a big TI package? Or is it roughly in line with market?

Brendan, it's Tom.

To answer that question, I think rents today for that kind of product type are going to be -- depending on the concession package --you're going to be around $50. New development is of course $70 or higher on a gross basis. And then you try to look forward to what does that look like in 2019 because I think a developer has got to try to at least price it somewhere between now and commencement of 2019.

So you can see that just with some basic growth assumptions that there's still a pretty large delta. We made a compelling offer to not only just renew at a low, really stripped-down rate, but also with a big renovation on top of that. So we gave them a couple options, and I think they're intrigued with both.

That being said, it's early in the process for them. And I think we're going to continue to have a fairly active dialogue to try and make a deal with them.

Great, all right, thanks for time.

Our next question is coming from the line of John Bejjani.

Paul, you mentioned an extensive renovation at 1775 Eye. What's the scope and expected cost per foot on that?

Yes, this is Tom.

I think that renovation was baked into the acquisition that was finishing up when we took over, and we were just wrapping that up. So we're complete with that renovation, and that was baked into the acquisition.

Okay. On Silverline, you mentioned, your asking rents are now high $30s per foot versus high $20s previously. Can you just remind me how much of the square footage that applies to?

Yes, so that's a price focused on the tower. But then when you add the atrium, we've guided some of that space is also benefiting from the renovation. We're able to move rents there as well -- probably not a $10 move but maybe a $5 to $8 move.

So across all the space available to be re-leased, which some of it has been re-leased, in terms of analyzing that pro forma, it was about 350,000 feet of total leasing. So we've got 200 feet and change to go.

Okay.

Does that answer your question?

Yes, yes sure.

And lastly, can you speak to the investment sales environment you're seeing in suburban Maryland and Northern Virginia, and how that compares versus, say, last year?

Sure, I'll give you our internal pipeline specifics, John, because it is quite staggering and does backstop what a number of you have written up about how competitive it is in Washington and how many investors do want to be here long term.

At the end of the first quarter of this year, and this was across three asset classes, we underwrote and evaluated the way we do 16 assets year to date as of March 31. For the same period last year, we had evaluated 42 assets as of March 31, 2014. Definitely not seeing as much product coming to the marketplace. I think the suburban assets, you probably don't have as many data points as you do downtown right now.

Downtown, if I'm really hungry for Class A assets in Washington DC, the two bites of the apple were really the 1201 K and Franklin Tower -- 1401 Eye Street, which is currently on the market. I think you're seeing some good activity in terms of broker opinions of value in Northern Virginia. But I think a lot of these assets, quite frankly, need stabilization and a better growth story with them.

And we're really not seeing, John, a lot of trades or a lot of data points in suburban Maryland right now. I think that there are assets clearly in Bethesda. But when I think suburban Maryland, I'm going out of Northern Bethesda up through Rockville up the I-270 corridor, where we're really just not seeing that much product coming to the table right now, probably because of the less-than-stellar market fundamentals.

Great, thanks.

Our next question is coming from the line of John Guinee.

To put a little more substance here -- and I'm fine, Paul, if you don't feel comfortable answering the question. But clearly, like everybody else, you want to get rid of the dogs and cats, open up the kennel doors, and replace that with core plus assets. And if I look at Rockville, 1 million square feet, if you just want to fire sales that stuff, would that sell at $50 or $150 a square foot?

Well, the only data point, John, I can give you for suburban Maryland right now is a foreclosure on a note on a 100% empty building that was above your $50 as a low point. So I think that any income-producing asset that we see -- candidly, I can name two assets in our portfolio in suburban Maryland right now that'll exceed the numbers you just threw out on the table.

The dogs and cats that you referred to right now, I agree that suburban Maryland definitely has its challenges. But let me give you a couple anecdotal things that we see happening up there. And our biggest hole right now was with 6110. That was us moving out of our building.

We've already got two leases, hopefully, on the spec suite side to backfill some of that space. 6110 right now, we're in discussions; we've got somebody over $200 a foot for that asset to talk to.

I think that one thing that went below the radar screen over the last 90 days was NIH was being fairly aggressive about trying to pull all of their uses, especially in North Bethesda and Rockville, to an on-campus type use where they would construct there. That has been both overruled by Congress and Health and Human Services. So if we are looking for a bright spot in that sub market, and sometimes we are, that's a good piece of news for us.

But I don't see a need to rush product to the table. I think we've talked about in the past, John, that we can't just wave a wand over an asset and say time to sell. I think our obligation to our shareholders is to create as much value as we can before we pass the baton off into the open market.

And some of our assets admittedly, Tom Bakke is doing a good job of making sure they're in their best stabilized state and that all of our CapEx dollars that we're putting into take the assets to sale are accretive dollars being invested. But as Steve talked about earlier, we are looking at selling more assets. We are looking at trying to take advantage of the climate we're in. But I really don't see the herding the dogs and cats to the exit. I just don't see that being in the best interests of our shareholders right now, John.

How about the other end of the spectrum, high-quality assets at a sub fi cap? Would you consider a joint venture sale of sub portfolio of that sort of asset?

A sub fi cap rate for portfolio sales?

Just some of your better --

I didn't hear the whole question, John. You cut out for a second.

Oh, I'm sorry. Just the other side of the equation is similar to BXP awhile ago, when they sold a big portfolio to Norges to sell a 40%, 45% interest of a portfolio at a surprisingly low cap rate. Is that on the table?

When I consider something is on the table, I think that we have a live deal that someone has presented to us. I think that we are always open to taking a look at various ways to monetize the portfolio and create value. But we don't have anything specific in line, nor have I discussed anything of that magnitude with our Board.

All right, thank you very much.

(Operator Instructions)

Our next question is coming from the line of Chris Lucas.

A couple of follow-up questions on some of this line of questioning that we've had already. On the Silverline leasing, Paul, the 50,000 feet -- is that in the entire building of lease up, or is that specific to the tower?

Chris, Tom Bakke.

The question about how much remains to be leased in what part of the project?

No, I was just trying to understand what leasing has been done. The 50,000 square foot number that was referenced earlier, is that specific to the tower; or is that across the building?

We've done about, I would say 30,000 in the tower and about 20,000 in the atrium. And we just did another 8,000 to that digit in the numbers in the tower that's coming in.

Okay.

So the majority of the space remaining would be leases in the tower, and it's from the top down. We've preserved the best space, hopefully, for the anchor deal that we're looking for.

Okay, great. And then trying to understand. As it relates to the acquisition pipeline, is there anything that is under contract at this point?

I would say that we have visibility on an opportunity that we are continuing to underwrite.

Okay. And then just thinking about how the Spring Valley asset worked with the Country Club Towers. Should we be thinking about your ability to acquire and then do reverse 1031s on something you would be sell something? Or is that a unique circumstance that happened to work out here with the Spring Valley and Country Club Towers?

Chris, this is Steve.

It's a good way to also manage the dividend for the Company. In that case, it worked out really well. Sometimes when you sell older legacy assets, they have bigger tax gains.

There's clearly room in our dividend for some capital gains. But then you use various techniques to maintain your dividend; one of which could be a 1031 exchange, and it could be a reverse like we did before. Other things that REITs do in that situation is do cost segregation studies. There are just other techniques that you use. So it is a tool that we would consider, if appropriate, again.

Okay, great. Thank you.

Our next question is coming from the line of Dave Rodgers.

Quick question on the acquisitions that you've said you passed on in the first quarter. And you gave some additional detail that there might have been quite a few. But I think as for those transactions that you really went after pretty hard and you didn't end up falling out of the bidding early for one reason or another, what ultimately do you think caused you to lose that? I mean, price obviously is a big issue. But where do you think those deals traded, and what asset classes were you really going after hard to start the year?

Well first off, Dave, my apologies if I led to you believe that we actually bid on those assets. We have a pretty fast-paced, disciplined process here. And I can give you some market color about what we see trading and what we haven't pursued.

But a lot of those assets, we have an internal investment committee that you have to go through before you're even allowed to bid on an asset. And none of those deals really made it out of committee. Candidly, our portfolio managers didn't recommend any of those transactions.

But what I would say across the board were at the price per pound, the going and yield, and what we felt was the ability to recognize significant upside, which is what we're trying to embed in our valuation creation model, we didn't see it really there. I think most of the assets that we've brought to the table have had a discount-to-replacement-cost element to them, as well as some leasing opportunities.

The assets that I'm referring to that we looked at in the first quarter of this year, I think you were paying through the cash flows for the leasing opportunities as if they were occupied. They traded at premiums to replacement costs. And they were in sub markets that we thought were getting slightly long in the tooth in terms of upside potential. And that is for Office, Multifamily and Retail, Dave.

Actually, that is really helpful, Paul. And to turn that around on the disposition side, obviously you're pleased by Country Club Tower sale. Anything in the market currently? Any particular asset? Sounds like maybe suburban Maryland office has been discussed recently.

But I guess, one, anything out there in the market currently at the volume that you're looking at. And then the second part of that would be differential and cap rates between maybe Multifamily or Office, depending on which one goes, given where occupancy rates are.

Okay, well let's start with is there anything currently out there right now. The answer is no. We just closed Country Club Towers three weeks ago. Very happy with that trade. That has definitely spurred us on to continue to recycle assets. We are getting VOVs on different asset classes, different assets in all three portfolios right now, Dave.

And the one thing I can say without hesitation, from the time I came here to today, is definitely seeing movement on cap rates coming in. And everybody has always questioned when you start monetizing your legacy assets and talking about dilution. We think the cap rates have come in very nicely, and we don't see the dilutive prospects being as great. And so we're trying to methodically balance that and achieve a blended cap rate that we think is palatable for our shareholders.

In terms of offering you guidance, we will be continuing to monetize assets throughout the year, as Steve highlighted. I think from what we're trying to do is the value proposition for us is offering growth in the stock.

And I think, as we mentioned, aside from the Organic portfolio growth that we're pursuing right now, we're working aggressively on Silverline. We're working aggressively on The Maxwell. We're working aggressively on leasing up the final space in 1775 Eye Street that we think is going to add anywhere between $0.19 to $0.24 when those assets stabilize.

Additionally, besides that, and the reason it keeps coming up, should you be selling more of these suburban assets, quite frankly, we think there are some pretty damn good renovation and redevelopment opportunities embedded in some of those assets in the portfolio. Maybe on the surface, the shell might be a little long in the tooth. But the location and what's happening around the assets in their respective sub markets, we're pretty excited about. So we think we have an ability to harvest more by maybe not as much selling but employing a renovation and redevelopment program.

Plus we have some visibility on some other assets that we've been talking to owners on over the past 12 to 18 months to create more external growth, which dovetails with our strategic plan for growth in the portfolio.

All right, thanks, Paul, that's helpful.

Last question for Steve -- welcome aboard. Any chance to get some of the expenses from the first quarter back as the year progresses through reimbursements or through fighting some of tax issues in DC?

Maybe there's an opportunity in the taxes. Unfortunately, I think what we said is our snow and utility expenses, which happened right as I was coming on board, hit us right where it hurts. Some of these big box retail centers have fixed and very low recovery rates. And that's why we got hurt disproportionately by it. So the chances of recovering it in there in terms of expense reimbursement is not really in the plans right now.

But from Office and other, you got most of your reimbursement back already?

Yes, and we didn't change our Office and Multifamily same-store guidance, by the way. It's Retail that we had to recognize took a hit in the first quarter, just so you know.

Yes, I heard that. All right, great, thanks.

Thank you.

Ladies and gentlemen, at this time, there are no further questions. Now I would like to turn the call back over to Mr. McDermott for a final remark.

Thank you.

Again, I would like to thank everyone for your time today. We appreciate your interest in Washington REIT. I would also like to remind everyone on this call that despite its current challenges, Washington DC remains one of the top real estate markets in the world, and one that is highly sought after for its defensiveness and liquidity.

Today we are seeing start-ups and technology companies create a new economy in Washington DC, which has the most educated workforce and the second highest share of millennials as a percentage of overall population. As important, the Washington Metro region is seeing growing momentum in job creation, with many projections trending above long-term averages.

We remain confident that this region will support our desired growth over the coming years. We continue to strengthen our portfolio, our people, and our processes, and are increasingly well-positioned to capitalize on any improvement in regional economic conditions. We look forward to updating you on our progress on the next call.

Thank you, everyone.

Thank you.

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