Washington Real Estate Investment Trust  (NYSE:WRE)
Q4 2018 Earnings Conference Call

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Feb. 15, 2019, 11:00 a.m. ET

Contents:

Prepared Remarks:

Operator

Welcome to the Washington Real Estate Investment Trust Year End 2018 Earnings Conference Call. As a reminder, today's call is being recorded.

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

Tejal Engman -- Vice President of Investor Relations

Thank you and good morning, everyone. Please note that our conference call today will contain financial measures such as FFO, core FFO, NOI, core FAD, and adjusted EBITDA that are non-GAAP measures as defined in Reg G. Please refer to our most recent financial supplement and to our earnings press release, both available on the Investor page of our website and to our periodic reports furnished or filed with the SEC for definitions and further information regarding our use of these non-GAAP financial measures and a reconciliation of them to our GAAP results.

Please also note that some statements during this call are forward-looking statements within the Private Securities Litigation Reform Act. Forward-looking statements in the earnings press release along with our remarks are made as of today and we undertake no duty to update them as actual events unfold. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. We refer to certain of these risks in our SEC filings. Please refer to pages 8 through 25 of our Form 10-K for our complete risk factor 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 and Drew Hammond, Vice President, Chief Accounting Officer and Treasurer.

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

Paul T. McDermott -- President and Chief Executive Officer

Thank you, Tejal, and good morning, everyone. Thanks for joining us on our year-end 2018 earnings conference call. 2018 was another year of solid operational performance, continued asset recycling and further balance sheet improvement for WashREIT. We delivered approximately 2% core FFO per share and 3% same-store NOI growth on a year-over-year basis. We upgraded our Northern Virginia office portfolio with the sale of Braddock Metro Center in Alexandria and the acquisition of Arlington Tower in Rosslyn. We continued to upgrade our DC office portfolio with the sale of 2445 M Street in the West end, having acquired Watergate 600 on the DC Waterfront in 2017. And we ended the year with a net debt to adjusted EBITDA ratio of 6.2 times.

As a result, we have entered 2019 with a strong balance sheet and a higher quality, better located portfolio with exciting lease-up opportunities in a region that is expected to benefit from a continued rise in defense spending and Amazon HQ2 related growth. This year, we are focused on multiple commercial lease-up opportunities that represent meaningful, long-term NOI growth for our shareholders. Our 2019 goal is to create solid visibility on our future revenue growth by executing commercial leases throughout the year and by delivering the first units at the Trove, our multifamily development by the Pentagon in the fourth quarter of this year.

Let me now provide you with a progress report on our key commercial leasing opportunities that were referenced in the 8-K we filed last November. Starting with Watergate 600, we are very close to signing a 51,000 square foot long-term lease for the top two floors of the building with a blue chip company that considers Watergate 600 to be its best relocation option, as it looks to expand its regional footprint. We expect lease commencement to take place in early 2020, pending the completion of an extensive build out.

This lease and the 22,000 square foot of other leases that we have executed thus far at Watergate 600 validate our acquisition thesis on office tenants being drawn to the asset's iconic status, and unparalleled waterfront views. Following the lease up of Watergate 600's top two floors, we have a pipeline of approximately 100,000 square feet of deals for approximately 40,000 square foot of current availability, which includes all other 2019 lease expirations. Thereafter, annual lease expirations at Watergate 600 are negligible until 2026 and beyond.

Moving on to Arlington Tower, we delivered one floor of collaborative, furnished suites within the Space+ program from December through early January. Over that period, we have signed two leases totaling approximately 8,000 square feet that are both already generating GAAP and cash revenues and have now received multiple LOIs for a third suite. When signed, we will have leased nearly half the floor we just delivered at weighted average rents that are 12% higher than both the expiring and the market rent for traditional leases with a weighted average term of 3.5 years and 26 days of weighted average downtime from delivery to rent commencement.

Our build-out of these Space+ suites is approximately 30% lower than the average tenant incentives incurred on new Class A (inaudible) quarter over the last 12 months according to Comstock data. Based on our proof of concept at the 1600 Wilson, we expect 90% of our initial Space+ capital outlay to have a useful life of at least 10 years. As of today, we have approximately 36,000 square feet of Space+ and 27,000 square feet of traditional lease space that is currently vacant and available to lease at Arlington Tower. We expect the majority of Space+ vacancy to commence throughout 2019 and for the traditional lease space to commence in the first half of 2020. We remain bullish on Rosslyn, which delivered another strong leasing year in 2018, following a record leasing year in 2017.

This sub-market continues to attract premier office tenants with the latest reports being that Amazon is looking to take a large block of co-working space in Rosslyn. Furthermore, the research we conducted with Congressional Quarterly projected an increase in contract awards in the RMB corridor (ph) that is resulting in robust activity among small and midsize office users, looking for furnace space with immediate availability and flexible terms. We continue to see excellent small deal activity in the market and tour velocity at Arlington Tower remains high with a deal pipeline of approximately 210,000 square feet. In general, we expect demand for high-quality flexible office space in our region will continue to grow and that landlords will have to quickly adapt their product offerings to capitalize on what is now regarded to be a secular shift in the office business.

That said, while flexible office and co-working are often spoken as one product offering, we believe they have different value propositions. Space+ is predominantly a flexible office offering that addresses existing and new tenant need for greater flexibility, while continuing to forge their unique corporate identities. Although core working product also offers duration flexibility, it is a relatively more expensive option for small and mid-sized users in our market, particularly those seeking to space to accommodate 12 or more employees.

Moreover, co-working still does a relatively poor job of helping small and mid-sized users establish their unique corporate identities as it attempts to cater to a wide variety of tenants with different space needs from freelancers to Fortune 500 corporations. Although Space+ is priced at a premium to traditional leases, it is at a very meaningful discount to co-working with creative design that allows tenants to emphasize their own brand, culture and customer experience. We therefore believe it is well positioned to meet the growing demand for flexible space, both out of co-working and from our existing long-term tenants, who regard Space+ to be a valuable amenity.

We finished 2018 with approximately 133,000 square feet of delivered Space+ space, which is located in 53 spaces across 10 buildings. The delivered space is currently 86% leased, with the majority of the remaining space having been recently delivered. We have another 57,000 square feet across 14 spaces in the Space+ program that we'll deliver over the next 6 to 8 months. Thus far, we have achieved rents that are at a premium to the market and in full year 2018, it took us approximately 69 days on average to get from delivery to lease commencement. This compares favorably with the 3.5 months of average downtime for spec suites and 16.5 months average downtime for traditional to be customized shelf space, according to NKF data.

Moving back to Washington DC office, we finally have some availability in our value oriented DC Class B office portfolio after years of being largely stabilized and fully occupied. Our most significant lease-up opportunities are 1220 19th Street, 2000 M Street and 1227 25th Street, where we have approximately 71,000 square feet of anticipated tenant vacates within our 2019 lease expirations. These include approximately 19,000 square feet feet at 1227 25th Street, as well as 41,000 square feet at 1220 19th Street, both of which were referenced in the 8-K published in November 2018.

Expiring rents for these anticipated vacates range from the high-40s to the low-50s gross per square foot, implying slight mark-to-market upside as well as significant gap to commodity Class A product where asking rents are currently in the high $60 gross per foot range according to JLL data. Moreover, JLL expects another 2 million square feet of Class B office product will be removed through 2022, further limiting value oriented options in the DC corridor.

In the 8-K we filed last November, we referenced four renewal leases in the DC Class B portfolio, two of these were roll ups, and two were roll downs, which I would like to detail further. The expiring cash rents for the 42,000 square feet tenant we renewed at 1775 Eye Street were in the mid-60s, as they had escalated over a number of years and blended 8,000 feet of the high value retail space that we now have taken back. We renewed the tenant at just above $60 a foot with 2.5% rent escalators over a term of 11.3 years, which is a very solid execution for lower floor Class B office space in Washington DC. Moreover, we expect to release the 8000 square feet of prime retail space at rents that will roll-up in the low double-digits.

The GSA renewal, which is out for signature was atypical, as the GSA held a recompete process where we were competing against C buildings in Southwest DC. 1227 25th Street is one of three assets in our portfolio that has space leased to the GSA and federal government tenants comprised less than 2% of our annualized base rental revenue as of December 31, 2018.

Now onto retail, where we are under LOI for both the 28,000 square-foot former HHGregg vacancy at Hagerstown and the 23,000 square-foot former HHGregg vacancy at Frederick Crossing with a discount retailer that will require significantly lower capital investment than previously estimated. We expect both leases to commence in the first half of 2020 and to generate approximately $0.5 million of combined, stabilized, annualized NOI. We are also negotiating a lease with a medical user for the entire second floor of the new Spring Valley Village development. If signed, this lease is expected to commence from early 2020 and contribute a little over $400,000 of stabilized annualized NOI.

In addition, we are very close to releasing a challenging 28,000 square foot vacancy at Montrose Shopping Center for a term of four years with lease commencement beginning at the end of the first quarter this year as well as a 15,000 square foot vacancy at Concord Center for a term of 10 years with lease commencement around year-end 2019. Finally, we have executed a 12,000 square foot lease for another vacancy at Randolph Shopping Center.

In summary, we are at LOI or lease for approximately 114,000 square feet of retail vacancies that are expected to commence by early 2020. We have made substantial progress on some of our most challenging vacancies and are pleased to be restabilizing the retail portfolio's cash flows.

Shifting gears to multifamily, we believe the announcement of Amazon HQ2 at National Landing is an unequivocal long-term positive for our multifamily portfolio. Approximately, 95% of our multifamily units are within a 30-minute driving distance from HQ2, with approximately 70% of the units located within a 5-mile radius of HQ2. We expect Amazon generated jobs to benefit the lease-up at the Trove, where the first units are expected to deliver in the fourth quarter of this year as well as some of our other Northern Virginia Class A assets, including Bennett Park and the Maxwell located in the Rosslyn-Ballston corridor.

With the cancellation of HQ2 in New York, there is potential for even greater job growth in Northern Virginia. There are several studies that had analyzed the multiplier effect of the 25,000 employees that Amazon has committed to bring to the DC metro region over 10 years. While the US Bureau of Economic Analysis estimates a multiplier of 1.9, UC Berkeley forecasts a multiplier of 5 additional jobs for every one Amazon job. As this multiplier manifests itself in potentially 50,000 to 125,000 additional jobs over the next decade, we expect it to positively benefit our Class B assets in Northern Virginia, including Paramount, Wellington, Park Adams, Riverside and Roosevelt Towers.

We remain positive on multifamily on a near-term basis as well. While supply deliveries remain at elevated levels, both our Class A and Class B multifamily portfolios continue to grow rents and occupancy as nearly 75% of our multifamily NOI is derived from assets located in Northern Virginia and approximately 80% is from Class B assets. As a result, our portfolio is relatively insulated from the large wave of Class A supply that's delivering in the Capitol Hill Riverfront and NoMa submarkets of the district.

In the fourth quarter, we grew Class A average rents by approximately 1.8% and Class B average rents by approximately 2.6% year-over-year, while ending occupancy grew 70 basis points year-over-year on a square footage basis. In full year 2018, we achieved 4.1% renewal trade outs, 60 basis points higher than in 2017, while retention remains steady year-over-year. New lease trade outs came in at a 1.8% for the year, broadly in line with our performance in 2017.

Looking at deliveries over the next 12 months, Northern Virginia is expected to receive 42% of the region's new units, below its historical average of 50% of the units, while Washington DC is expected to receive 45% of the new units, well above its historical share of 20%, according to Delta Associates. This regional delivery trend leaves us confident in our portfolio's relative positioning in 2019.

Moving onto our region's fundamentals, in spite of the recent government shutdown, we are optimistic on federal spending, continuing to be a positive driver for real estate demand, particularly in Northern Virginia, which will benefit from the continued increase in the defense budget and contract awards. As the data for 2018 contract awards is now available, we ask CQ examine how contract spending had fared, relative to their expectations at the time of the 2018 budget appropriations last spring.

For the DC metro region as a whole, government contract spending increased by 6.1% in 2018, which although significantly positive relative to recent history, was 2.1% lower than the projected year-over-year increase. Moreover, while contract spending rose 7.6% in Maryland and 6.9% in Virginia, it actually declined 1.1% in Washington DC. Growth in Virginia was driven by defense contract awards, which grew 11% in 2018, according to CQ Data and having met annual projections are expected to continue to rise in the current fiscal year. This is supported by the fact that for the first time in over a decade, the fiscal year 2019 defense budget was appropriated prior to the start of the fiscal year, which means that contractors have more clarity and fiscal assurance today than at any time in the past 10 years.

The overall regional increase in contract awards does appear to have had a positive impact on job growth, which was robust at 52,100 new jobs in 2018, relative to 50,900 new jobs in 2017. Importantly, the region created 16,000 new professional and business service jobs, which represented 31% of 2018 job growth relative to 10,400 new professional and business service jobs created in 2017, representing 21% of 2017 job growth. The fact that our region generated 54% more new professional business service jobs year-over-year is impressive.

That said, we believe the pace of fiscal year 2019 contract award has been interrupted due to the recent government shutdown. As a result, some awards may be shifted to later months of this fiscal year. While the initial shutdown didn't have a significant impact on our portfolio, the region's real estate fundamentals do remain partially dependent on federal government spending. Encouragingly for Virginia, not only was 2019 defense budget passed on time, but (inaudible) defense spending levels for 2020 and FY 2021 also call for continuing gains in spending.

Now, I would like to turn the call over to Steve to discuss our financial and operational performance in the fourth quarter and our 2019 guidance.

Stephen E. Riffee -- Executive Vice President and Chief Financial Officer

Thanks, Paul and good morning, everyone. 2018 net income attributable to controlling interests of $25.6 million or $0.32 per diluted share exceeded 2017 net income attributable to controlling interests of $19.7 million or $0.25 per diluted share. Core FFO of $1.86 per diluted share for the full year 2018 was in line with the midpoint of our most recent guidance range. We grew core FFO per share by approximately 2% year-over-year, partly due to 3.1% year-over-year same-store NOI growth.

On a sequential basis, fourth quarter core FFO grew by a penny, primarily due to lower overall building operating expenses. Expenses, as a percentage of revenue, improved 110 basis points for the second consecutive year to 34.5% for full year 2018, driven by expense management initiatives across the same-store portfolio as well as lower real estate taxes.

Core funds available for distribution or core FAD was approximately $121 million in 2018, representing a 78.4% payout ratio, which was better than the 80% payout ratio we had targeted for the year. For 2019, we are targeting a core FAD payout ratio of approximately 80%. Our full year 2018 same-store NOI growth of 3.1% GAAP and 3.7% cash was driven by higher revenues across the office, multi-family and retail portfolios, as average same store occupancy grew by 40 basis points year-over-year and rental rates and recoveries across all three property types trended higher.

Moving onto office and retail leasing, we leased approximately 153,000 square feet in the fourth quarter, including 52,000 square feet of new leases and 101,000 square feet of renewal leases. Office renewals included the 42,000 square foot early renewal of one of our top 10 largest tenants. As we had detailed in the 8-K filed in November 2018, the renewal was for 11.3 years at rents that were single digit roll downs on a GAAP and a cash basis. Notably, the remaining approximately 49,000 square feet of office renewals rolled up on a GAAP and a cash basis.

Retail signed approximately 17,000 square feet of new leases where economics were skewed by two leases signed with service providers that are expected to further improve the merchandising mix and traffic at two of our neighborhood and community shopping centers. We achieved 100% retail tenant retention in the fourth quarter, driven by our proactive approach to retention and tenants exercising early renewal options, a trend that we believe will continue in 2019.

Our biggest needle movers on the leasing front are Arlington Tower and Watergate 600. These two assets account for a third of our 2019 office lease expirations and provide us the opportunity to create longer-term value by growing rents and further enhancing NAV. In retail, we have approximately 99,000 square feet or 5.4% of annualized retail rent expiring in 2019. The majority of these lease expirations are in our neighborhood and community-anchored shopping centers with a median lease size of approximately 2,500 square feet.

With regards to multifamily unit renovations, at year-end, we had 272 units left to renovate at the Wellington and 191 units left to renovate at Riverside. The Wellington unit renovation program is now 60% complete, while Riverside is 78% complete. We are generating a mid-teens return on cost on the renovation dollars that have been invested at these two assets to-date and expect consistent returns as we plan for these programs to be substantially completed through 2019.

Now turning to 2019. We are guiding to a full year core FFO per share range of $1.74 to $1.78. This range includes a $1 million to $1.5 million impact or an approximately $0.015 to $0.02 reduction as a result of adopting the new leasing accounting standard ASC 842, beginning January 1, 2019.

Our guidance includes the following assumptions: a projected same-store NOI growth range of negative 0.5%, deposit of 0.5%. Excluding Watergate 600, same-store NOI growth is projected to range from positive 1.75% to 2.75%. As Paul mentioned, we expect the top two floors of Watergate 600 to be built out for a new tenant in 2019 and the lease to commence in early 2020. We assume same store office NOI declines to range between negative 5.25% to negative 4.25%, while we are in the process of leasing up spaces, which we expect will contribute to same-store NOI growth in 2020 and beyond.

Excluding Watergate 600, same store office NOI growth is expected to be approximately flat at the midpoint. We assume multi-family and retail same-store NOI growth will each range from 3.75% and 4.25%. We project dispositions to range $175 million to $200 million. Our capital plan for 2019 assumes approximately $65 million to $70 million of development spending, predominantly for the Trove where we have executed a guaranteed maximum price contract that insulates us from escalations and construction pricing. Our interest expense is expected to range between $51 million to $51.75 million. Capitalized interest is expected to range from $2.75 million to $3.25 million.

G&A is projected to range from $18 million to $18.75 million, as we reduced costs by approximately 17% at the midpoint to partially offset the lower revenue in this lease-up period. Finally, we project office non-same-store NOI, which consist of Arlington Tower purchased in 2018, to range between $16.75 million and $17.25 million. Our focus remains on maintaining our balance sheet strength. We expect our net debt to adjusted EBITDA to be in our targeted range of 6 to 6.5 times and to end the year at the lower end of the range,

following the completed plan of dispositions.

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

Paul T. McDermott -- President and Chief Executive Officer

Thank you, Steve. I would like to take this opportunity to announce that Tom Bakke, our Chief Operating Officer, has informed the company of his retirement. As many of you know, Tom joined Washington REIT in 2014 to help transform the company. Tom turned the operations around by implementing a portfolio management model that increased accountability and drove superior performance. In a nutshell, Tom helped create WashREIT 2.0. I can't thank him enough for his many contributions, his passion, his leadership and for his friendship over the years. One of Tom's greatest successes is the development of an extremely talented team of portfolio managers across all three asset classes. I'm confident in their leadership and ability to achieve our operational and strategic goals. We wish Tom all the very best for this new phase of life and his very well-deserved retirement.

To recap, we are excited about our multiple commercial lease-up opportunities and look forward to updating you on our progress on those, as well as on the robust, multi-family and retail growth, we expect this year. As our guidance implies, we are proactively reducing our G&A by approximately 17% at the midpoint of our 2019 guidance range, as we cut costs and maximize the FFO we generate for our shareholders, while working to create long-term NOI growth through leasing. We have entered 2019 with a strong balance sheet and a capital plan that enables us to deliver the first units at the Trove later this year. 2019 is about leasing execution at WashREIT and we look forward to updating you on our progress throughout the year.

With that, let me now open the call to answer your questions.

Questions and Answers:

Operator

Great. Thank you. At this time, we will be conducting a question-and-answer session. (Operator Instructions) Our first question is from Blaine Heck from Wells Fargo. Please go ahead.

Blaine Heck -- Wells Fargo Securities -- Analyst

Thanks, good morning. Paul, thanks for all the commentary on Space+, that was very helpful. And it seems like pretty significant growth initiative for you guys. I guess how much of your office portfolio do you see as available to convert into Space+ and how big do you envision that segment could eventually represent?

Paul T. McDermott -- President and Chief Executive Officer

Blaine, Tom is pioneering this over the last -- over the last six months and so, I'm going to just ask him to comment on the metrics.

Thomas Q. Bakke -- Executive Vice President and Chief Operating Officer

Yeah. Thanks, Paul. So, Blaine, I think we've touched on Space+ before, it's our flexible space program and we do have a lot of things happening in the office business. One of the most important things is this push toward more flexibility and more experiential type offerings. You hear a lot of co-working data sort of geared and it could grow upwards of 10% of the office business. I think that's sort of on the aggressive side.

The way we look at it is we are creating an offering sort of in the midpoint that addresses the small to mid-sized tenants that have a need for speed, that have a need for flexibility, have a need for sort of a broader service offering. And we think it could be upwards of 5% of our portfolio. So right now, it's probably about 3%. I don't think it gets much above 5, but we want it to be broad enough that we can address these evolving tenant needs in pretty much all the sub-markets we are in.

Blaine Heck -- Wells Fargo Securities -- Analyst

Great, that's helpful. Maybe for Paul or Steve, you guys have been trading at a discount to NAV most of this year so far. Good to see some of that is coming back today, but have you guys contemplated share repurchases and how do you think about that opportunity to invest in your own stock versus maybe going out and purchasing something at market cap rates?

Stephen E. Riffee -- Executive Vice President and Chief Financial Officer

Well, Blaine, I think we've probably been asked that over the years from time-to-time as the markets have fluctuated. It's certainly in our capital allocation analysis. We've always said that we do consider it, but we would do it on a leverage neutral basis to keep the balance sheet strong. And so to do that, the debt that we would be paying down alongside of a share repurchase would be on the cheaper end of our debt, it would be our short-term debt that we could pay down and we look at like their stock price, where we're at. It's -- we are in the 5s and we still have the Trove where we have, a guaranteed maximum price contract.

We're well along -- the initial stabilization yields are over a 6 in that development and we think -- thereafter, we think that's an improving market for further growth and in the near term, we still have some of our renovation programs going on in our units, in our multi-family value add properties and that's been yielding in the mid teens. So, it is something that we do evaluate. It has not crossed the threshold is our best allocation to capital at this point.

Blaine Heck -- Wells Fargo Securities -- Analyst

Okay, makes sense. And then last from me, you guys have guidance for around 200 million of dispositions this year, can you just talk a little bit about what you guys are targeting to sell, whether it's going to be kind of one-offs or larger deals and maybe how you're thinking about the timing of those sales? Is there anything being marketed at this point?

Paul T. McDermott -- President and Chief Executive Officer

Blaine, nothing is being marketed right now. But I would say that, as we look at our portfolio, we have some office assets that are probably reaching their inflection point and that has just been due to Tom's team's great leasing efforts. And so, we're, I think, at the end of the value creation from our standpoint there. And so those are types of assets we would take to market. Steve, just in terms of timing.

Stephen E. Riffee -- Executive Vice President and Chief Financial Officer

Sure. I mean, considering we're already a little bit into the year, our own models and forecasts assume that we get, I'd say, less than half done around mid-year, with the balance of our guidance range toward the end of the year.

Blaine Heck -- Wells Fargo Securities -- Analyst

Great, thanks. And Tom, good luck on everything in the future.

Thomas Q. Bakke -- Executive Vice President and Chief Operating Officer

Thanks, Blaine. Appreciated. Great.

Operator

Our next question is from John Guinee from Stifel. Please, go ahead.

John Guinee -- Stifel Nicolaus -- Analyst

Great. Nice job. And Tom, we will miss you. Talk about the Trove, it looks to me like it's almost walking distance to the Pentagon, to Fashion Square, Pentagon City and a couple of blocks further east is the new Amazon HQ2 headquarters. Can you actually walk in a tunnel under 395 to get to it or do you have to cross 395 on foot?

Thomas Q. Bakke -- Executive Vice President and Chief Operating Officer

You have to cross 395, but John, I think from the Trove, we will be running shuttles like we do from the Wellington, its sister property on the site, so we don't want people running across 395.

John Guinee -- Stifel Nicolaus -- Analyst

And is -- $300,000 a unit seems pretty reasonable. Can you talk about how you got there, did you allocate any land to it, did you have to build a bunch of structured parking et cetera?

Paul T. McDermott -- President and Chief Executive Officer

Sure, John. So 300,000 units, it's just a hair above 300,000 a door. I think our competitive advantage, you hit on it, is really the land basis, our hard costs and I'm just going to go the Tower and a parking, but our hard costs are around 235 a door, soft costs around 36 and our land basis, we think if you were to try to go out and buy land and replicate what we're doing on the Trove, call it be about 70,000 a door and our land basis is just between 36 and 37 a door.

The only thing I would add to that, again, if you're comparing it to kind of a market rate deal on our math, since we have looked at other opportunities, yes, you do, as you pointed out, John in terms of parking, if you're doing above grade, we're allocating probably 22,000 a stall for that and for going below grade, we're probably averaging around 45,000 a stall.

John Guinee -- Stifel Nicolaus -- Analyst

Great. Okay. And then shifting to FFO guidance, it's down $0.10 year-over-year, which on 80 million shares equals about $8 million. Your FFO for 2018 is $146 million. So, it's over a 5% decline year-over-year. What on earth is driving a $8 million, 5% decline in FFO?

Stephen E. Riffee -- Executive Vice President and Chief Financial Officer

John, this is Steve. I think one of the reasons that we wanted to give visibility in the 8-K that we filed in November 2018 was to kind of lay out the lease expirations. So they're laid out and pretty much in sequence with 60,000 square feet happening right off in mid-January. And so, and we also talked about in this call, our efforts in 2019 are really, we believe we're under the way, will be steady lease up throughout 2019 for the spaces that we have available.

So I think in most of that, we will be really contributing in early 2020 and some of the leases will continue, in the 8-K, will continue to expire in May and August. So we believe, looking at our numbers, we're certainly not ready to give full guidance for 2020. But we believe that both same-store and overall -- overall same-store and office same store will then return to same-store growth in the first quarter of 2020.

John Guinee -- Stifel Nicolaus -- Analyst

Got you. Thank you.

Operator

(Operator Instructions) Our next question is from Daniel Ismail from Green Street Advisors. Please go ahead.

Daniel Ismail -- Green Street Advisors -- Analyst

Great. Thanks, guys and good morning and Tom, all the best in retirement. Just a quick question on the dispositions, are there any tax consequences associated with the dispositions?

Stephen E. Riffee -- Executive Vice President and Chief Financial Officer

Dan, it is Steve. Right now, we always do tax planning and for having already recycled as a management team over $1 billion of capital, we've always made sure that is tax efficient. Right now, we believe that the guidance that we put out and the way we could execute it that we wouldn't have to reinvest the proceeds, but it really depends on what you sell and when you sell it. So it's something that we're always mindful of and that we would always keep an eye on.

Daniel Ismail -- Green Street Advisors -- Analyst

Great. And I think you mentioned over the last few quarters some difficulty in finding acquisition opportunities in your -- the sweet spot of value add multifamily, can you expand on that and how you guys have seen the pipeline over the last quarter.

Paul T. McDermott -- President and Chief Executive Officer

Sure, Danny. I think if you're looking at the DC market right now, I would say that predictably, given all the volatility that we saw in December, we saw a little bit of a pull back by some of the portfolio managers that we thought were going to bring product to the market in January. So I think we've had a slow start there. But we do see a lot of product particularly office product coming to the market. I think that is also pretty predictable, especially in Northern Virginia. I think you're going to really see a surge in Northern Virginia office product coming out, trying to draft off of the successes of both the Silver Line and HQ2.

he type of -- we're still not really seeing any core capital out there, looking for product, it all has to have a value add component. I think as we've tried to say to you, we are going to continue to look for multifamily product, that's the part of the portfolio we want to continue to recalibrate. When I say that too, I think there's going to be some eye-popping numbers, I mean the rumor is now the Meridian, that's on the market, directly across the street from Amazon will trade in the upper three caps, that is not the products that we're looking for, we think that we are looking at some multifamily, both one-offs and portfolios right now. And the opportunities that we do look at are at better cap rates and I think have better -- offer better value propositions for our shareholders.

Daniel Ismail -- Green Street Advisors -- Analyst

And maybe for the ones that you get a fee income to market, has pricing changed at all, maybe excluding the ones around National Landing?

Paul T. McDermott -- President and Chief Executive Officer

I don't think we have enough data points for a fact pattern there. I think if anything, they've been flat, I think when you look at anything, I mean I can't pick up an OM that's come across my desk without giving me the precise proximity to HQ2. So I think people are definitely looking for a little juice there, but I think smart investors are discounting that. It's still -- like I said earlier, it still has to have, Danny, some type of value add characteristic to really get the juice and I think people are really looking for, just given the inflow of jobs over the next 10 years or what's projected to be and drafting off of defense and tech in Northern Virginia, I really think the multifamily is still kind of the sweet spot.

Daniel Ismail -- Green Street Advisors -- Analyst

And maybe just last one for me, the Riverside land parcel, can you guys give us an update on your plans for that piece of land and maybe expectations for any type of development starts in the near future?

Paul T. McDermott -- President and Chief Executive Officer

Well, we're in design development on Riverside right now. I think you're talking about the piece of land that was out in front of our property. Yes, we're still examining that. Our land basis right now in Riverside is, I want to say, between 20 and 21 a door and we think market land value if I was to do a market rate deal down there, it's probably about 35,000 a door. So roughly about a 40% discount, but we are looking at Riverside both with and without that parcel and as soon as we have something further to comment on about Danny, we'll let you know.

Daniel Ismail -- Green Street Advisors -- Analyst

Okay, great. Thanks guys.

Paul T. McDermott -- President and Chief Executive Officer

Thank you.

Operator

Our next question is from Chris Lucas from Capital One. Please go ahead.

Chris Lucas -- Capital One -- Analyst

Good morning, everyone. Tom, congratulations. Good luck and thanks for all of your help over the last several years. I appreciate it.

Thomas Q. Bakke -- Executive Vice President and Chief Operating Officer

Thanks, Chris.

Chris Lucas -- Capital One -- Analyst

As it relates to the Trove, Paul, just kind of curious, I know Phase 1 is up and you're moving forward and expect delivery of units later in the year. Is Phase 2 under construction at this point and if so when or if not when will you start construction for that phase?

Paul T. McDermott -- President and Chief Executive Officer

Phase 2 is not under construction right now. I believe that we are shooting forward in the back half of '20 in terms of delivery.

Chris Lucas -- Capital One -- Analyst

Right. So, when would you have to get started in order to meet that delivery timeframe?

Paul T. McDermott -- President and Chief Executive Officer

Later on in the year, Chris.

Chris Lucas -- Capital One -- Analyst

Okay. Will the lease up pace at the Phase 1 impacted all your decision to move forward with Phase 2?

Paul T. McDermott -- President and Chief Executive Officer

No. It will not.

Chris Lucas -- Capital One -- Analyst

Okay. So you're going to press forward with that. Okay. And then as it relates to sort of longer-term lease expirations, we're inside of two years now in World Bank, when should we be thinking about how to handicap that renewal?

Thomas Q. Bakke -- Executive Vice President and Chief Operating Officer

This is Tom. I think we are in discussions with them right now, Chris and I think there is -- there are some things going on at the World Bank as we know, but the real estate department seems fairly focused on trying to get something done. So hopefully, we'll have some good news at some point in the not-too-distant future.

Chris Lucas -- Capital One -- Analyst

Okay, thank you. And then on the dispositions, I guess just kind of curious, you mentioned targeting office. I guess, just curious whether or not these would be lumpy transactions or whether or not there are some granularity to sort of the mix?

Paul T. McDermott -- President and Chief Executive Officer

I think there will be some granularity if it's office, they're kind of on an asset management basis, kind of when they hit their different inflection points, so there may be separate opportunities and the timing might be different.

Chris Lucas -- Capital One -- Analyst

Okay. And then on the -- on Tom's retirement, I guess, just trying to understand, Paul, will you be back filling that role or how are you thinking about -- what your plans are there?

Paul T. McDermott -- President and Chief Executive Officer

Well, like I said in my remarks, Chris, I think Tom has built out an exceptional team. I think they're kind of a self leading team, the three portfolio managers, and so we're not going to backfill it at this time. But, we will keep our options open going forward.

Chris Lucas -- Capital One -- Analyst

Okay. And then maybe if I could just pivot over to the G&A guidance, can you give me more color on just sort of how you're able to (inaudible) that much savings year-over-year, I'm just trying to get my arms around it.

Stephen E. Riffee -- Executive Vice President and Chief Financial Officer

Sure, Chris. Well, in addition to everything else we've been executing over the last couple of years, we've had pretty large initiatives to invest in our technology and our processes. And also in our leadership development to prepare people to step up into bigger roles and all of that's creating efficiencies and we feel that it was very timely, we believe those efficiencies are going to allow us to reduce costs this year and that would be appropriate for our shareholders in this period of where revenues are down, what we're going to lease up again.

Chris Lucas -- Capital One -- Analyst

Okay, thank you. I appreciate it.

Paul T. McDermott -- President and Chief Executive Officer

Thanks, Chris.

Operator

Thank you. This concludes the question-and-answer session. I'd like to turn the floor back to management for any closing comments.

Paul T. McDermott -- President and Chief Executive Officer

Thank you, everyone. Again, I would like to thank you for your participation on our call today and we look forward to talking with many of you soon at the upcoming conferences. Have a good afternoon. Thank you.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Duration: 50 minutes

Call participants:

Tejal Engman -- Vice President of Investor Relations

Paul T. McDermott -- President and Chief Executive Officer

Stephen E. Riffee -- Executive Vice President and Chief Financial Officer

Blaine Heck -- Wells Fargo Securities -- Analyst

Thomas Q. Bakke -- Executive Vice President and Chief Operating Officer

John Guinee -- Stifel Nicolaus -- Analyst

Daniel Ismail -- Green Street Advisors -- Analyst

Chris Lucas -- Capital One -- Analyst

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