Q3 2019 Earnings Call

Welcome to the Washington, <unk> Real estate investment Trust third quarter 2019 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.

<unk> Hopkins.

Vice President of Investor Relations will provide some introductory information Amy. Please go ahead.

Thank you and good morning, everyone. Please note that our conference call today will contain non-GAAP financial measures. Please refer to try most recent financial supplement into our earnings press release, both available on the Investor page of our website under the periodic reports furnished are filed with the FTC for definitions and further information regarding the use of these.

non-GAAP financial measures and a reconciliation to GAAP results.

Also note that some statements. During this call are forward looking statements within the private Securities Litigation Reform Act, which I mean, I think today and we undertake no duty to update the actual events unfold.

Such statements involve known and unknown risks uncertainties and other factors that may cause actual results could differ materially.

First started these risks and our SEC filings participating in today's call with me will be called Mcdermott, President and Chief Executive Officer, Steve Riffee Executive Vice President and Chief Financial Officer True Hammond, Vice President Chief Accounting Officer, and Treasurer, and Grant Montgomery Director of research now I'd like to trend.

However to Paul.

Thank you Amy and good morning, everyone. Thanks for joining us on our third quarter 2019 earnings Conference call.

Today, I would like to discuss the strategic objectives that we have achieved this year and have those achievement shaped the next phase of growth for wash rate.

I will also provide an update on our multifamily strategy and how our newly acquired assets are positioned for success and I will discuss our commercial leasing momentum as we progress towards every turn to office and all I growth and 2020.

Starting with our 2019 strategic capital allocation plan over the past six months, we have completed 1.1 billion of transactions.

That recycle capital outlay of higher risk retail assets and into value add multifamily assets.

We significantly strengthened and de risks our portfolio, while allocating more capital to assets with greater growth potential.

We expanded our ability to capitalize on the supply demand imbalance for value conscious renters, and the DC area and improved our geographic mix by increasing our exposure to northern Virginia, which is increasingly becoming the job engine for the region.

Moreover, our assets sales reduced our 2020 lease expirations.

40%, creating greater visibility on future analog growth.

As a final point, our execution was strong and all regard.

The cap rate on the combined retail asset sales was 6.3%.

All in all we're confident that this year, a strategic capital recycling has improved our shareholder value proposition and ability to capitalize on regional demand drivers.

As we look ahead to the next phase of growth for wash free we expect multifamily just soon become our largest asset class.

Over the near and intermediate term multifamily growth will be fueled by continued base rent growth that will be further enhanced by value add unit renovations and income for the trove multifamily development, which will lease up through 2020.

Going forward, we plan to continue to allocate more capital to multifamily relative to office as we are long term believers in the multifamily sector and we expect to outperformed the broader market with our highly targeted strategy.

As always our capital allocation will be driven by detailed research and market knowledge.

In House research capabilities and local focus provide an advantage in view of the Washington market, which enables us to unlock value.

Our research based strategy led our acquisitions of the assembly portfolio and Cascade at landmark, which fits squarely into our broader strategy of targeting mid market rent or households, earning between 50 to $75000 per year.

It's growing segment on the market comprises 25% of the regional rental demand you have less than 5% of new construction. Since 2013 has been built at rent levels. They can afford.

At a 30% of income monthly outlay. These households can comfortably afford to average monthly rents off 1200, 15 to 1800, $75, which encompasses the sweet spot of our portfolio, while leaving plenty of room for rent growth.

Both our urban and suburban class B strategies provide compelling value propositions.

With more high quality living space X. significantly lower rents the nearby class a properties and an urban setting.

Or with no doubt payment and lower monthly expenditure compared to single family alternative in the suburbs.

The average in place rents for newly acquired Assembly portfolio is over $900 below the monthly cost to purchase a home in each of their respective suburban submarkets.

And $800 cheaper than the cost of rent in a typical class a units in the region.

Within a more urban context, cascade rents provide excellent value compared to nearby class a alternatives with an affordability gap in excess of $300.

Our appropriately scope renovation programs offered and improved living experience at price points that are affordable and competitive.

We acquired a 1700 unit renovation pipeline.

Adding to our existing renovation pipeline of 1600 units.

Bringing the total to over 3300 units, which represents approximately half of our most total multifamily portfolio.

Our renovation plans within each community are specifically designed based on the current finish level and the competitive position in each respective submarket.

At the assembly portfolio, the renovation packages range and cost from 10000 to $14000.

With anticipated rent premiums of 85 to $125 per month.

For Cascade, the renovation packages approximately $12000 foreign approximate rent increase of $100.

On average the weighted average rent increase required to generate cash on cash return in the low teens as approximately $100 per unit, which is well below the weighted average affordability gap of $800 per month.

With a median rent to household income ratio of 26% there was plenty of room for value creation and rent growth.

Additionally, macro demographic trends and demand supply dynamics are in our favor.

Employment in population growth in northern Virginia, where over 80% of our 2019 multifamily acquisitions are located.

Supports our expectation for sustained income growth.

Cascade and Assembly Alexandria are just a short drive from HQ to offering access to the region Tech defense and cyber security growth, which are all expected to continue to drive demand.

Even as demand grows the supply of apartments with comparable class B price points remains constrained as building to these modern rent levels is economically challenging due to high land labor and material costs.

As it relates to new class a product development opportunities, we have at the Wellington and Riverside apartment communities offer favorable economics due to the below market cost of land at these hard to replicate sites.

Our Wellington covered land play the trove, it's physically delivering units this quarter and those units should begin leasing up in January .

Additionally, we have the opportunity to add another 767 units at Riverside and we are likely to proceed with that first phase of that opportunity and 2020.

Turning to our same store performance growth trends remain strong reflecting sustained demand for value oriented multifamily product within the DC area.

Year to date, we have grown average ramp by 2.7%.

New and renewal lease rate growth or trade out was 3.6% on a blended year to date basis through the third quarter with growth in both metrics at all our same store multifamily assets.

Same store NOI was up 4.6% year to date and we have increased our guidance twice this year illustrating the incremental strength that we are saying.

Furthermore, we still have the renovation led value creation opportunities embedded in approximately 40% of our same store multifamily portfolio.

Or 1600 units.

And our renovation programs continue to generate mid teens return on cost on average.

Turning to our commercial portfolio, we achieved strong rental rate increases on both a cash and GAAP basis during the quarter illustrating continued demand for our class B office assets, our leasing volume was slightly below our expectations due to the impact of timing.

As we signed approximately 260000 square feet of leases after quarter end, including a renewal with the World Bank, which cut our 2020 lease expirations in half, which Steve will discuss in more detail later on this call.

As expected, our new and renewal lease volume was higher in the first half of this year as we've made substantial leasing progress to date.

As we look to the overall office landscape and the district, we see two trends that we believe will benefit our D.C. assets in the CBD.

First we see a reinvigoration of the CBD as leasing momentum is migrating from the east end.

Second we see a growing trend of tech demand and the district itself.

Tech users have been the district second largest driver of occupancy gains since Q1 2018, according to see be AHRI data.

In northern Virginia, well over half of our office portfolio is located absorption rates are the highest they have been in eight years. According to JLL.

We believe the strongest submarkets follow the Silverline from Arlington near H. Q2 through the RB corridor, Tysons and out to the Dulles Tech corridor.

These submarkets representing over half of northern Virginia leasing activity and the third quarter of 2019, According to JLL data.

The outlook appears favorable at $30 billion of cyber security contracts are expected to be awarded and the next 24 month, which should drive demand in these submarkets. In addition defense spending has surge increasing by 16% since fiscal 2017 and northern Virginia.

<unk> continues to benefit the most from these federal outlays.

Tour activity at our Northern Virginia assets has nearly doubled the level that was at this time last year and space plus our flexible office program. It's producing good results at higher rents with less downtime to lease commencement compared to traditional leases with an average term of three years.

The success of this program has allowed us to address our tenants growing demand for flexibility speed to market and competitive amenities without using third party co working providers.

We do not having any co working providers as tenants in our portfolio.

Our space plus program currently represent 5% of our total commercial portfolio and 6% of our office portfolio and that space was 80% leased at quarter end.

As the program matures, we're generating better returns on our invested capital and we continue to see a premium to market rents of 9% to 10%.

We have also been able to reutilize nearly all of the first generation tenant improvements for second generation generation leases signed thus far including three signed in the third quarter.

In terms of our outlook for office and why growth, we are making solid progress on backfilling, the 2019 lease expirations.

Year to date, we've addressed approximately 80% of the office vacancy that was highlighted in our 8-K filing last November and we currently have a leasing pipeline of prospects totaling over 220000 square feet for that remaining space, which is over two and a half times square feet of that existing.

I can see.

We've also made progress on addressing our 2020 expirations.

The sale of our retail assets reduced our 2020 retail lease expirations by over 90% and our overall lease expirations by over 40%.

Moreover, after quarter end, we renewed and extended our lease with the World Bank through year end 2025.

Including the World Bank renewal, we've reduced our 2020 lease expirations by nearly 70%.

Overall, we're in a better position now than we were at this time last year.

We are pleased to be achieving rent growth, despite an elevated level of lease expirations.

We expect key Commencements in early 2020 to set us on a path to return to same store office and NOI growth on a year over year basis and 2020.

With that I will turn it over Steve to discuss our third quarter financial and operational performance as well as the key drivers of our inflection for sequential at Hawaii growth.

Thanks, Paul and good morning, everyone.

Net income was $332.8 million or $4 in 14 cents per diluted share compared to net income of $5.9 million or seven cents per diluted share in the prior year.

The large increase is primarily due to net gains on asset sales from our executed strategic capital allocation transactions.

Core AFFO was 41 cents per diluted share, which was in line with our expectations when a year over year basis core FFO per share decline four cents due to our asset sales, partially offset by the acquisition of the assembly portfolio and Cascade.

As well as the previously disclose office vacancies that we continued to make substantial progress on backfilling.

Now turning to same store performance.

Overall same store NOI declined 1.6% year over year on a GAAP basis in 0.7% on a cash basis due the expected 5.2% gap declined 3.7% Cafs decline the same store office in Hawaii.

The primary driver or the same store office into why decline is the expiration of two large leases at Watergate 600 at the beginning of the year.

Excluding the impact of these spaces.

Which has since been substantially released.

With long terms to credit tenants same store office in Hawaii increased slightly.

Compared to the third quarter 2018.

Driven by positive rent spreads when new and renewal leases signed this year.

We expect both same store office in Hawaii, and total went away to return to growth on an annual basis in 2020.

Turning to multifamily same store NOI has increased 4.6% year to date and 3% in the third quarter.

Moreover, excluding the net impact of higher than usual tax appeal settlements that were recognized in the third quarter of 2018.

Same store multifamily into I grew by 4.6% year over year for the quarter.

Rents grew across all of our same store multifamily assets on a sequential basis as well as year over year.

And rent tradeoffs during the summer leasing market exceeded our expectations.

New lease rates increased 4.2%.

Renewal lease rates increased 4.4% during the third quarter, resulting in a blended rent lease rate increase of 4.3%.

One of the whole, both renewals and new lease rent increases across our entire multifamily portfolio exceeded our expectations.

And we have maintained occupancy levels in the mid Ninetys as a result.

Following us to optimize and why growth as we approach the winter months.

Same store gap in Hawaii increase of every residual retail centers, which we report is other by 1.8% and cash in Hawaii increased by 2.4% year over year.

Driven by higher valued lease Commencements that spring valley village as well as higher recoveries of previously reserved bad debt.

Turning to leasing activity for the quarter, we signed approximately 35000 square feet of New office leases and 16000 square feet of office renewals in the third quarter.

We achieved solid rental rate increases of 22.3% on a GAAP basis, and 7.8% on a cash basis for new leases.

And 15.5% on a GAAP basis, and 6.6% on a cash basis for renewals.

Driven primarily by demand for our well Amenitized class B office assets, specifically in the district this past quarter.

The increase in tenant improvements and the free rent it and the free rent period for new office leases compared to the second quarter 2019.

In prior year period was due to an increase in the weighted average term as we signed several long term leases for high quality credits during the quarter.

<unk> per year per foot of term basis tenant improvements for new leases were in line with the prior quarter and lower than the prior year quarter.

For renewal leases signed during the quarter tenant improvements were lower than usual due to a high number of shorter term renewals for smaller spaces that did not require improvements.

All in all we're pleased with the leasing that we have executed as we continue to make progress with back filling our 2019 office lease expirations.

While our office and other leasing volumes was a little light this quarter, we signed several leases after quarter end, including two long term leases comprising over 22000 square feet at Watergate 600 with lease economics that reflects the increase in the value that space following lobby renovations and amenity upgrades.

Watergate 600 is now over 92% lease it continues to generate leasing momentum with value creation.

Once again as Paul mentioned subsequent to quarter, it we renewed and extended our lease but the world Bank through year end 2025, thus we have another six years of lease term.

The terms of the renewal include two additional five year renewal options.

Also as mentioned this reduces our lease expiration schedule substantially reducing cash flows risks in our portfolio.

Separately World Bank requested and we agreed to give them a onetime purchase right that expires before year end.

If they exercised the right we will update details once the sale has concluded.

Otherwise, we have an extended lease because additional renewal options.

In terms of our other leasing activity, having sold most of our retail leasing exposure leasing volumes for light good economics were positive.

Post quarter end, we signed a long term lease for the entire second floor of the new building at spring Valley village to a concierge pediatric practice that has been operating in DC for over 90 years.

Spring Valley is now 92% leased.

Additionally, we signed a significant expansion for a current space plus tenant in Arlington tower.

Not only their growth within the program Arlington Tower is now 90% leased.

Now turning to guidance with only one quarter remaining and the strategic transactions, having now been executed we are reiterating the midpoint and narrowing.

Our core our 2019 core FFO per share guidance to a range of $1.70 cents to $1.72 cents.

From a prior range of $1.69 cents to $1.73 cents.

We expect to sell an additional $125 million to $150 million of office assets by year end, which are yet to be announced.

Our 2019 core FFO guidance does not assume we will complete any additional acquisitions this year.

We reiterate and our expectation for our overall same store NOI.

Decline within a range of one of the quarter, 0.5%.

We expect same store multifamily lycra to range from four to quarter to 4.75%.

Same store office in a wide to decline in the range of five in a quarter the 4.5%.

Same store other rental <unk> to range from 13 in a quarter to 13 and a half million dollars.

We expect development expenses to range from $45 million to $50 million. We now expect the annual impact of the adoption of new leasing accounting standard see a 42 to be approximately $1.75 million in 2019.

Reflecting higher leasing activity completed.

We expect core DNA to range from 20.75 to 21 in a quarter million dollars.

Interest expense to range from approximately 54, and a half to $55 million.

Capitalize interest is expected to range from $2.75 million to $3.25 million.

And lastly, we continue to expect our 2019 core fad payout ratio to be in the low 80% range.

Turning to the balance sheet, we're committed to maintaining our investment grade credit metrics, we maintained our liquidity levels, even while executing our strategic transactions.

While our debt to EBITDA ratio was elevated temporarily at June Thirtyth as we were in the mid execution of our strategic capital allocation.

We were back to 6.3 times by September Thirtyth, which is well within our targeted range of six to six and a half time.

We continue to expect to have a strong yearend balance sheet.

Before I turn the call back over to Paul I'd like to discuss our in Hawaiian selection in light of recent transaction activity and expect that lease commencements.

As previously communicated with our 2019 strategic capital allocation plan, we're going through and earnings reset period, and we expect core FFO to bottom in the first quarter of 2020, driven primarily by our expected the year in asset sales.

Following the first quarter of 2020, we expect sequential quarterly NOI growth to be driven by combination of factors.

First.

The long term lease for the top to force of Watergate 600 commences in the first quarter.

Second.

We've addressed the large majority of 2019 commercial expirations.

We expect rents to commence and commercial vacancy the decline throughout 2020.

Third.

Overall multifamily rent growth will be further enhanced by ongoing renovations and operational improvements at our newly acquired assets.

Lastly, the trough will lease up throughout 2020 and is expected to contribute approximately one cents per share of in Hawaiian 2020, $6 million or eight cents per share in 2021.

We currently expect stronger overall full year AFFO growth in 2021.

As we close in on an inflection point for AFFO growth.

We're optimistic about the path we are on.

With multiple growth drivers across both our multifamily and commercial portfolios.

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

Thank you Steve.

We have made significant strides and executing on our multifamily strategy in 2019.

Weve recycled capital at a higher risk retail assets and to value add multifamily assets and stabilized and improve our NOI growth outlook.

Our portfolio is well positioned to capitalize on the supply demand imbalance for value conscious renters in the DC area and we've now expanded to the surrounding suburbs, where over 70% of the regional household growth is projected to occur over the next five years.

In addition, we have potential development opportunities that will unlock embedded value by adding onsite density at desirable returns.

Following the true.

We have the near term opportunity at Riverside as well as longer term opportunities to increased density at some of our remaining retail and multifamily assets.

Alongside the execution of our multifamily strategy, we've made significant progress on leasing our 2019 commercial expirations.

As we signaled at the end of last year 2019 was a difficult year with an elevated level of vacancy due to several large commercial lease expirations.

Year to date, we have addressed approximate 80% of that vacancy and we expect to deliver improvement and same store office and NOI growth in 2020.

To conclude it's been a transformative year for wash read with key achievements across both our multifamily and commercial portfolios.

Looking forward, we're focused on driving a strong trajectory during 2020, any very strong year over year FFR growth and 2021.

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

Operator, Please go ahead.

At this time will be conducting a question answer session if you'd like to ask a question. Please press star one on your telephone keypad a confirmation total indicate your line is in the question Q you May Press Star too if you would like to remove your question from the Q4 participants using speaker equipment. It may be necessary to pick up or has that before pressing the star. He's one moment. Please while we pull for questions.

Our first question is from Brendan then Wells Fargo. Please proceed with your question.

Hey, guys. Good morning, I wanted to ask you about the redeployment of proceeds from your year end asset sales.

I guess just given the success you've had with your multifamily development and the opportunity you have for more units at Riverside. How are you thinking about using those proceeds on development versus additional multifamily acquisitions.

Well, we're going to continue to fund out the trove Brandon as we complete that we're delivering units.

This quarter and that will continue into 2020, and then as you've pointed out we have a capital spend on.

Renovated units in 2021, I mean, we have.

A pipeline of 3300 units to renovate so that will continue over the next.

Three to four years and then.

In terms of new development, I mean, I think we're going to consider.

All opportunities for capital sourcing.

At that level.

And in Britain, and I'll, just add the Steve.

One of the things that we wanted to do it's been our guidance all year that we expect a good asset sales at the end of the year and.

Always said, especially since we're not ready to give 2020 guidance is we thought it was appropriate for you and everyone to know that that's the case. So we're our expectations are that we would end the year, assuming we execute asset sales with a stronger balance sheet and I think that's important.

Because that really explains why the inflection point isn't the first quarter of next year instead of.

Instead of the fourth quarter of this year.

And so we're not committed in terms of.

Being able to plan, we do not have to reinvest those so we're going to give ourselves optionality, we've done enough execution and tax planning for this year that we've assumed that we can complete asset sales and just have a stronger balance balance sheet with optionality going forward.

Okay, and then Steve on guidance.

You talked about the purchase option that World Bank has is that a assumed that the.

Exercise that in a 100 to 25 to 150 million of dispositions.

Brett brand, that's a great question and if they do exercise that option then that will be our asset sales at the end of the year, we're not going to comment on.

Transactions until they close but if they exercise that right. Then there you have it that would be one of the ways. We would get there. The other thing I should say for everybody's benefit and is.

We literally got the signed lease for the World Bank last night and it was after the earnings release went out we were expecting it earlier throughout the day yesterday.

We held the release as long as we could and we do apologize it went out a little later than normal.

It did at least over Hyve last night, so that we could at least comment on today.

And we're glad that we could.

Sure and then I'm just following up on the World Bank lease are you able to give any or just kind of high level commentary on either the mark to market on that the T.I.s or like any free rent components.

Sure Brennan.

So we refine the world.

Well bank lease it's actually from today, it's a six year deal.

Given the year that they still had left.

That leases for 218000 square feet.

It's a basically a five year extension.

We are going from an old face rate of 54 33 down to 50 to 50 on a cash basis. So about a 3% decline, but we have two in a quarter of rental rate bumps annually.

Built into that.

We have six months of free rent that'll be associated with that commencing in 2021.

And T.I.s of $45 a foot thick.

They can spend that now, but the pay would not take place anytime before 2021, and then associated with that they also have to extension options of five years, each which is consistent with the way the wall Bank has been leasing that space for the last.

20, plus years. In addition, they also had arrived a first offer on any space remaining in the building which comes available.

And in Brendan Steve Steve again, I'll add one thing it really is a point of emphasis and Paul said it in a in the prepared remarks.

The Big point for US is you know we announced the strategic.

Capital allocation plan at the end of April when we tied up the assembly portfolio and we've been talking all year about our lease execution and.

As of last night, we've actually been able to address 70% more than 70% of that lease expirations for 2020 and that does what we said we set out to do this year and that's significantly de risk to the company in its cash flows going forward and so thats a big point for us.

Very helpful. Thanks, guys.

Our next question from John Guinee.

Stifel. Please proceed with your question.

Paul Nice job.

I'd ask you one important question how good does it feel to say you have zero co working tenants.

It feels okay John .

Im not only happy about that but I'm happy with our space plus program, which is.

Doing quite well and as 80% leased also.

Great out of curiosity.

What happens on your op backs, what's your operating expense on the World Bank building and do you have an opex reset.

When you up.

Renew this lease.

Oh I believe we have a base your reset, but all I can check that and circle back with the John .

Right.

And then I'll talk a little bit about a $30 billion cyber security contracts I'm sure I'm, assuming that's a combination of government military and corporate but.

Correct Me and then where did those.

Employees.

Contract employees want to office, so they want to office in their own buildings. These days that they want to office in government or Deo de buildings and house How's the how's that working out these days.

Hey, John this graph.

Getting back to your call. So there the there are about.

Five contracts that are are set to be awarded over the next 24 months. The one that's really gotten all the headlines as the jet I contract with the D D that 10 billion.

But there are others, including agencies like no up.

DHS and even the GE assays that are.

In the range of $2 billion to $8 billion.

And those are all set to be awarded I guess that over the next 24 months.

We expect or I am looking forwards that it is highly likely that these will be in commercial space.

In that quarter doors that Don Paul mentioned during.

The call.

In the Silverline core door.

Sort of starting in the Rosslyn ballston areas and out through the Dallas Tech corridor.

Gotcha and then last question it looks to me Steve Let you guys are going to be trading you're trading at about 19 times 2020, ethanol and maybe a little below on a six implied cap.

How do you guys feel about issuing equity at this level.

Well, John I think every easy answer we can't answer we get but it's a it's meant sincerely is.

We certainly would look at all sources of capital and if it's appropriate where we can create value we would.

So I.

I mean, it's we always evaluate and some and obviously conditions are more favorable now than they have been over the last few months.

But on the other hand, we also have some assets that.

We think it might be appropriate to recycles another source of capital.

Right and clearly we're not giving guidance on 2020. So those those are those are your numbers for now and we'll we'll take responsibility for those were ready to update.

Up into the right. Thanks a lot.

Hey, John just one other thing it's Paul the base you reset up correct. The base your reset, but it's not until this current lease expires. So the reset at not until 2021.

Andy It does the when you look at the old expense stop plus the pass throughs and look at the new.

[laughter] base year reset does that end up.

Helping or hurting the the 3% cash decline or said another way is on a net basis is that.

More than 3% decline or up less than 3% decline.

That one I will have to get back I don't have that in front of me John wonderful. Thank you nice job guys.

Thank you.

As a reminder, we are now conducting a question answer session. If you would like to ask your question. Please press star one under telephone keypad, one other piece, while we both questions.

Our next question is from Anthony Paolone JP Morgan. Please proceed with your question.

Hi, Thank you congrats on World Bank.

A question about the purchase option you mentioned exercise it by the end of the year would that also mean quotations and you're done with it as well.

Tony as Steve, Yes, if they exercise the right will it will be our year end transaction.

Okay, and so do you have other assets for sale in the market right now Im just trying to understand how your juggle.

Yes, or if they exercise and if you have other things in the market sounds like this 125 to one diffuse the number.

Yeah, well, we do have other options and we can't comment on things because they're just not far enough along but we we do believe it's appropriate at this point to signal that we do expect to have asset sales, we'll certainly update it and how they turned out once we execute the transactions and we've done that all year and our guidance even before the strategic.

Capital allocation plan was announced just so people would understand when when to expect an inflection point.

Okay, but it from.

If you have stuff in the market and it goes well and then World Bank does exercise it's possible you could do more or you'll you'll just stop there was other deals.

Yeah, we it's inappropriate right now the comment I think we have some optionality and and so I think we have done enough planning to be able to execute more than one way and look forward to being able to tell you more what we did once we once we complete some transactions.

I understand and then.

You talked about some of the pipeline beyond trove on the multifamily side in terms barriers to investors that kind of what was now when I look at the press release the comment about just expanded opportunities for renovations on on the apartment side are there other.

Projects, but you've got picked up.

Well, we have I mean, two if you're looking at you know new newer opportunities Tony like I said, we're you know we're going to be finishing up the trove.

And that will deliver throughout 2020, it's delivering right now first first waiver units are delivering right now as we speak we have a pipeline of 3300 doors teed up for renovation between the assembly and what it was already embedded in our portfolio prior to that and then we are.

Looking at we can add 757 units at Riverside and we are looking at our.

Options on that right now as we speak.

Okay got it and then.

Last question as you build out multi family here.

No you're all used a couple of third party providers to kind of run some of those assets at what point would you think of bringing that in house or do you feel like that's just not necessarily necessary because you're getting good execution as it stands or how would you think about that.

I think first and foremost Tony I mean, we want to make sure we're constantly offering the best product and the best service to our residents.

And I think our to third party service providers of doing that with that said.

We're.

Extremely sensitive as we grow and scale the business of controlling our brand I think we've always looked at between 8000 10000 doors.

That it may make sense to.

Look at that so we still have a little time before that but that's definitely something that we will be.

We will be giving due consideration to.

Okay. Thank you.

Thanks, Tony.

Our next question is from Danielle Smile Green Street Advisors. Please proceed with your question.

Great. Thanks, guys I'm, just just one quick one for me on World Bank or any potential sales are neither so that wouldn't necessitated tenthirty, one exchange or how much you're a capacity do you guys have to shelter any capital gains.

Thanks, Dave This is Steve and I tried to address that earlier, so sorry, if I wasn't clear we've done enough tax planning and execution. This year that we've assumed we can execute these year end transactions without having to do at 10 31 without having to.

Reinvest the proceeds and so we can absorb them within our our taxable income in our dividend levels.

Okay, great. Thanks.

Yes.

Our next question from Chris Lucas Capital One Securities. Please proceed with your question.

Good morning, guys nice quarter.

Quick ones for me on on the World Bank, if the World Bank does not exercised their option to purchase is that an asset that you would look to sell regardless.

Down the road here say in the next year.

Chris Paul.

As.

We've talked about.

And weve been been pretty transparent about it for a company of our size to have concentration risk with single tenants.

We just don't tickets.

A proposition a good proposition for our shareholders. So I think if the world Bank does not exercised its option to purchase this year, we would look at monetizing that asset going forward.

Okay, great. Thank you and then.

As it relates to sort of.

Spectra development yields on say, whether its riverside or the next phase of its true how do those yields compare today from an underwriting perspective to what is available in the market and the force in terms of a transaction market is that does that.

Yep.

Stayed the same has narrowed as widen what are you seeing in the marketplace.

Well, it depends on which market, but and where you're playing but like when I look at the multifamily space right now and I'll I'll start with.

Acquisitions in the core space.

It's pretty thin Chris in terms of the product that's available and that space is really trading in the low to mid fours and there's solvent for the five the value add capital that's out there that that's chasing a yield there probably on the acquisition front, there probably looking for high fours in there.

Solving for an 11 to 12.

Our our with about a 65% LTV and those guys are being pretty aggressive on rental growth I think the interesting thing that we're seeing on the acquisitions front since we've probably done a little bit more of that than we've done development is really in the kind of suburban core to core plus some when I'm talking about there is.

You know that 2013 to 2015 deliveries.

You know the at least at Greenway Northwestern mutual just sold that's a.

You know a forced story walk up in Loudoun County, and we know the broker was guiding.

To a five and that went for I think about a four six which.

Translates to about 285, a door, it's pretty aggressive I look at the people that are getting squeezed out of those core acquisitions and they're definitely willing to develop to core.

And there are probably developing to a mid fives, Chris and in some cases one deal. We we shadowed they were at a low five return on cost metric that's not what we would do if you look at the trove and you look at Riverside for example, our low land base.

That's really gives us a competitive advantage.

And when I look at you know to 85.

Al.

Ill add on the Greenway versus I think we're going to deliver the true for just over 300 to door for new product.

I'm pretty comfortable with with what we're putting on the table from a development front.

Thanks, that's all I have go nuts.

Thanks, Chris Yes.

There are no further questions at the time and I'd like to pass the.

The call back over to Paul Mcdermott for closing comments.

Again, we'd like to thank everybody for your time on our call today, and we look forward to seeing many of you at nave read and a couple of weeks good afternoon.

This concludes today's conference you may disconnect your lines at the time. Thank you for your participation.