Q2 2021 Washington Real Estate Investment Trust Earnings Call
[music].
Welcome to the Washington Real estate investment Trust second quarter 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.
Amy Hopkins Vice President of Investor Relations will provide some introductory information Amy. Please go ahead.
Thank you and good morning, everyone. Before we begin please note that forward looking statements may be made during this discussion such statements involve known and unknown risks and uncertainties, which may cause actual results to differ materially and we undertake no duty to update them as actual events unfold, we refer to certain of interest in our SEC filings reconciliations of the.
GAAP and non-GAAP financial measures discussed on this call are available in our most recent earnings press release from financial supplements, which were distributed yesterday and can be found on the Investor Relations page of our website participating in todays call with me will be Paul Mcdermott, President and Chief Executive Officer, Steve Murphy, Executive Vice President and Chief Financial Officer Drew.
Hammond, Vice President Chief Accounting Officer, and Treasurer, and Grant Montgomery, Vice President and head of research now I'd like to turn the call over to Paul.
Thank you Amy and it's good to have you back following your maternity leave.
Morning, everyone and thanks for joining us today.
Last evening.
We released our second quarter earnings results.
Core <unk> was at the top end of our guidance range and above consensus expectations.
We will of course discuss those results, but we know our transformation that we announced on June 15th is top of mind for investors and the key focus of this management.
Okay.
Today I will update you on the progress of our strategic commercial portfolio sales and our research led southeastern markets expansion I will also address the strengthening Washington Metro multifamily market as well as south eastern markets and the status of our value creation.
As mature communities.
Steve will discuss recent multifamily performance and trends are views on strategic Differentiators that we believe will continue to help us succeed our second quarter results and our strengthened balance sheet as we execute our transformation.
Then I will wrap up by recapping.
<unk> for the balance of 2021, as we complete our transformation and move forward as a multifamily REIT.
Let me start with our progress on our strategic transformation.
Since our mid June announcement of the transformation, we have completed the sale of our office portfolio, excluding our best.
First office asset Watergate 604, which we believe we can drive even greater value for $766 million.
We have also given notice that we are redeeming the $300 million 2022 notes and expect to complete that redemption in late August.
We also are now.
Now under a binding agreement to sell our remaining retail assets to a single buyer for $168.3 million and expect that transaction to close in the third quarter.
Following the retail closing, we expect to pay down our term loan by $150 million as we message.
Our webcast.
I'd like to turn now to our progress on multifamily capital deployment.
As you know we are in the final stages of our strategic transformation that has taken place over several years.
We went from 4 asset classes to 1 and we are moving forward as a.
Family REIT with proven research driven strategies.
<unk> pipeline of investment opportunities and a good economic backdrop.
Following these transactions not only will we have recycled only over $5 billion of assets to improve our portfolio, but.
But we also decreased leverage increase.
Increased liquidity and lengthened our debt ladder.
These actions increased our financial flexibility and unencumbered the right side of our balance sheet to position us for growth.
As we covered in our transformation webcast and multifamily we are experiencing positive drivers to fuel.
From this time, a post pandemic inflection onboard.
In office, we were facing challenging and increasing headwinds, including increase in capital requirements and we expect those headwinds to continue.
This contrast in growth prospects boosts, our confidence that would create more.
Our growth for our investors going forward through our portfolio Recalibration.
We understand that these transactions are dilutive to earnings in <unk>, yet we believe they are initially <unk> neutral and offer a far greater opportunity to increase NAV.
Not only in the near term.
But over the long term as well.
As we discussed during our June 15th webcast. This transformation is a reset and as such our board reset our dividend and we continue to prioritize the strength of our balance sheet and access to capital for the long term.
Because of this we have enough capital.
More value acute these transformative steps and have access to capital beyond that.
Additionally, we have a roadmap to continue to grow and create value for our shareholders.
We are focusing on middle income renters, which is a strong underserved and growing core cohort and southeastern markets that.
To echo auditing as well as here in D C, where we have successfully been executing our affordability based investment and operational strategies.
Over the past several months, we have been actively underwriting deals and the southeastern markets, where we believe our strategies can successfully achieve long.
We are to rent growth outperformance these.
These markets include Atlanta, Raleigh, Durham and Charlotte.
We are positioning ourselves to acquire assets that have the targeted renter cohorts and growth opportunities by vintage to allow us to execute our class a minus class b value add.
Long term b portfolio strategies.
We are targeting Submarkets with attributes that we believe are most likely drive rent growth and tailoring our specific investment strategy to best create value just as we've done in the Washington Metro region.
The pipeline has been active and while we have passed on some deals.
That do not fit our strategy, we see opportunities ahead that make us confident we can allocate this capital appropriately over the balance of this year.
At this point, we have an initial asset under contract in suburban Atlanta and are in the process of acquiring additional assets that fit our strategy and are in submarkets.
Markets, where we expect to be able to grow rents.
We will provide more color through ongoing updates as we close on asset acquisitions.
The markets that we're targeting are projected to be among the best in the nation in population growth and net migration over the next decade and they.
Strong rent growth that we've been tracking accelerating further throughout the second quarter.
Year over year effective rents for Atlanta, Raleigh, Durham, and Charlotte grew by 14, 3% 10, 3% and 10, 6% respectively in June as reported by real page.
New lease trade outs were even stronger averaging 17, 9% across the 3 markets and a 670 basis point inflection between April and June.
Average concessions remained in the low single digits in each market.
Average just 5.5%.
Pitching up slightly over the quarter from 5.1% in the first quarter.
However, the breadth of the market offering concessions retreated markedly with just 15% of units across the 3 markets offering concessions in the second quarter.
630 basis points.
Over the quarter.
Annual demand also surged across these markets as in migration and household formation drove record setting absorption.
Accordingly, first quarter annual demand had already exceeded the 5 year average in each target market, yet it jumped nearly 30% higher.
Higher in the second quarter.
Raleigh, Durham, and Charlotte posted second quarter annual demand at 156% and 151% of their 5 year averages respectively, while Atlanta second quarter annual demand topped 186% of its 5 year demand trend.
And these market data points further illustrate the rationale behind our expansion into these markets, where we believe strong demand and rent growth outperformance will continue to power, our expanding portfolio over the near and long term.
Here in our Homebase markets, we also have great optimism.
For growth ahead.
The Washington apartment market also experienced day performance inflection during the second quarter with significant improvement from April through June and as reported by real page.
Year over year effective rents turned positive in June for the first time since April 2020.
With particular improvement in June as effective rents climbed 214 basis points higher than the second quarter average.
Suburban Virginia performance, followed a similar pattern, but with even stronger growth with year over year effective rent growth accelerating to 5.9% in.
June 2.
245 basis points better than the second quarter average.
Average concessions in the Washington market declined 200 basis points in the second quarter to 9.1%.
The breadth of the market offering concessions also declined with 19, 7%.
<unk> units in the Washington market offering concessions in the second quarter down 250 basis points versus the first quarter.
Our current same store multifamily portfolio has approximately 6700 units and is 96% occupied.
Our average monthly rent.
<unk> is just under $700 per door.
Our suburban Virginia apartments have performed well during the pandemic and continue to do well much like the sunbelt markets. We have research to analyze the last several years.
We are slightly above 96% occupied.
In suburban multifamily assets and 95, 8% overall.
And effective rents continue to be strengthening.
Furthermore, 2 thirds of our current 2800 unit renovation pipeline is in our suburban assets, we have activated the renovation programs.
And are targeting low double digit rois at a minimum.
Urban effective rents have grown stronger every month since the December bottom and urban blended lease rates have turned positive on an effective basis.
Meanwhile, suburban lease rate growth has been exceptionally.
<unk> strong reaching over 5% on an effective basis for July move ins.
We have now fully delivered and investment in trove, which delivered only $200000 of NOI in the first quarter and approximately $425000 in the second.
Quarter, but most importantly, its lease up now has tremendous momentum.
Since April 1 we have signed 160 leases or slightly over 40 leases per month, well above the regional average of 13 leases per month.
This increased demand allowed us to further.
Further push market rents by over 8%, while also reducing concessions.
We now expect drove to stabilize near year end as opposed to our prior expectation of May of 2022.
Our multifamily rent collections have remained strong at 90.
Throughout the pandemic as a research has led us to focus on runners with solid credit in areas that offer a higher relative exposure to the strongest employment sectors.
The combination of the strong spring and summer leasing seasons, and the vaccination led N.
Pandemic restrictions leads us to believe that further strengthening from here is underway.
Over the long term.
Our research forward approach has positioned us with a multifamily portfolio in submarkets with strong supply and demand fundamentals.
From a demand perspective.
The Washington Metro region has a significant housing shortage and an affordability crisis that is only getting worse as the cost of homeownership continues to rise.
From a supply perspective, our region has been under producing housing product at the price point that would address.
Rest of the growing demand and therefore, most matters remain underserved by new supply.
Our ability to successfully position ourselves to benefit from a large and growing target renter market and limited competitive supply over the long term and our Washington Metro markets.
Sets us up well to expand the key elements of our strategy into the targeted southeastern markets.
We intend to utilize the learnings from the Washington Metro market and further adapt to continue our growth as we geographically diversified.
We are extreme.
<unk> is grateful to all the wash REIT team members, who have diligently reshaped this company over the past several years and while we will miss those moving on to further their commercial portfolio careers.
We are also excited by the team in place to continue to build our multifamily future.
Premier League are augmenting our multifamily operational leadership and team for the new markets and we are following the roadmap that we've created over the last year to build out our infrastructure for the future.
We believe we will create efficiencies as well as further enable our ability to scale up.
We are very effectively.
And with that.
I will now turn it over to Steve.
Thank you Paul and good morning, everyone.
I will first cover our multifamily trends and results as well as our overall reported results for the quarter.
I will also address our views on strategic.
Differentiators that we believe will continue to help us succeed.
Recap our balance sheet focus to.
To allow us to continue to be strong even after our initial deployment of this transformation capital and finally I will discuss our outlook.
We ended the second quarter on a positive note and we are starting to experience the.
<unk> deduction that we had anticipated.
All signs point to increased demand momentum and we are seeing pricing power return.
Concessions are pulling back dramatically effective lease rates have turned positive and available rates indicate further improvements throughout the summer months.
Rate growth.
Growth from our new lease executions has improved over 10% over the last 7 weeks on a growth spaces.
The average concession per unit per move ins scheduled for July and August as 70% lower than the second quarter average representing a $630 decline in concessions per unit.
Blended lease rate growth.
<unk> improved 460 basis points from the first quarter to the second quarter on an effective basis, yet the most significant growth occurred during the last 2 weeks of June.
The acceleration has continued into July and blended effective lease rates have already improved by another 240 basis points. Thus far in July on an effective basis.
New lease rates have shown the most significant improvement with average new lease rate growth improving over 600 basis points from June to July on an effective basis.
Our suburban properties continue to outperform our urban properties and average new lease rate growth increased to 5% thus far in July on a year over year basis.
In urban new lease rates have reached their inflection and turned positive on a blended basis for the first time on leases executed in late July.
Both urban and suburban lease executions with August and September moving dates indicate further improvement.
Looking at our rents on our available homes. This upward trend is continuing.
Turning into the third quarter.
Applications and moving activity remains strong as net applications increased 35 per cent during the second quarter compared to the prior year.
Same store occupancy grew 60 basis points post quarter end to 95, 8%, allowing us to continue to push rents.
And on the real.
<unk> side.
There have been very good demand and renewal lease rate growth is currently tracking above 3% on average the suburban renewal lease rate growth tracking above 5% on average.
Trove is now fully invested.
And should begin to grow its NOI contribution significantly.
Leasing momentum continues to grow with trove now over 76% occupied and 81% leased.
We expect <unk> to be a key growth driver in 2022 and 2023.
As Paul said, 2 thirds of our 2800 unit renovation pipeline within our suburban communities.
For occupancy and effective lease rates are the strongest.
When the pandemic hit we temporarily paused our renovation programs, but have since activated these programs at properties that are appropriate affordability gaps and new renewal lease rate growth.
We began by rolling out market tests renovation.
<unk> materials and contracts.
And executing the renovations at certain assets from turns a.
Year to date.
We are fully renovated or 90 units and invested capital and upgrading 80 additional units we are securing rent increases.
When renovated and improve units that meet or exceed our targeted rois and we are picking up the pace.
The renovations through the summer months, while unit turnover is seasonally high.
Just this month, we completed 30 renovation and we are optimistic this momentum will further increase this summer.
Now turning to our financial performance net loss for the second quarter of 2021, with approximately $7 billion or 8 cents per diluted share.
Share compared to a net loss of $5.4 million or 7 cents per diluted share in the prior year.
Core <unk> of 35 per diluted share was at the top end of our guidance range driven by stronger than expected results from both our multifamily and office portfolios.
On a year over year basis core <unk> per share declined by.
4 cents due primarily to the impact of the pandemic on rental and other income on a comparative period basis and higher interest and G&A expenses.
Family same store NOI declined 2% on a GAAP and cash basis.
For the second quarter compared to the prior year, primarily driven by the combination of lease rate declines and higher.
Concessions on leases signed during the pandemic.
Revenue comparisons for this quarter are still negative relative to the prior year, we have seen multifamily lease rates increase significantly and sequentially since our December lows.
Following the significant inflection in lease rate growth, which started in the second half of June.
Since July we expect improving multifamily same store results during the second half of the year.
Other same store NOI decline.
4.6% on a GAAP basis from 1.7 per cent of the cash basis in the second quarter compared to the prior year period, primarily due to lower cost recoveries and higher utility expenses.
To briefly summarize commercial leasing activity, we signed approximately 24000 square feet of new office leases and approximately 88000 square feet of renewal office leases in the second quarter.
Office rental rates were flat on a GAAP basis and declined 4% on a cash basis for new office leases and increased 37 per cent of the GAAP basis 5 per cent of the cash basis for office renewals.
And it is renewal improvement was primarily related to the Sunrise lease at Silver line Center.
Our multifamily collections continued to be excellent tracking well above national averages.
With over 99% of cash and contractual rents during the first quarter and our rent collections through July are in line with our quarterly trend.
Year to date.
Residents have received over $1 billion of local government rent assistance and we expect that number to grow as local governments continue to work through the backlog of claims and the pace of distributions ramp up.
Throughout the second half of the year that said our resident credit has been excellent.
And this helps on the margin.
As we covered during our transformation webcast, we have clear differentiated strategies and a track record of executing them.
We have provided case studies to demonstrate how we use research to lead and executed.
Same strategy successfully to date, including investing in our suburban apartments ahead of the pandemic is over 70%.
Percent of household formation is expected to take place in those markets over the next several years.
Our affordability and growing mid market renter cohort demand has been studying not only in our current market, but also in these other markets for years.
And we have confirmed that the same dynamics of housing needs for these renters exists as.
On a scale where income levels in those markets.
We have proven the importance of staying disciplined to not only compete at price levels with new supply that is beyond control.
And understand the importance of leading indicators for rental growth beyond broad market statistics.
Our tools include a predictive analytics.
Adjusted was using radio.
Dietary model developed by Us with a research firm that analyzes employment and demographic data, we correlated with real estate data we analyzed many factors.
Find the highest R squared correlation predicting rent growth, which leaves us to target vintages in sub markets with increasing.
Kate the bucket jobs by analyzing job creation expectancies for cohorts we target.
Our analysis considers predicted job creation by sub market and the multiplier benefits of additional higher profile jobs.
Turns of in migration as well as housing affordability and other factors to differentiate how we invest.
Often the.
Sub markets that attract the newest class a developments.
And the high class a acquisitions are far more competitive.
And have lower projected rent growth.
Another point and investors acknowledged in our numerous approach post transformation meetings is that we are differentiating ourselves from maintaining lower leverage and a stronger unencumbered balance.
In mid March that many small multifamily rates, but.
Well, we have the capital to reinvest from our transformative sales as well as having additional value and Watergate 600 to harvest.
Maintaining our balance sheet strength to allow access to financing the growth and simplified our business model, making it more straightforward to attract investors who were previously concerned.
And by our office exposure.
We expect to execute our strategy create additional value and win the support of investors for further growth going forward.
Now turning to our outlook for the balance of the year updating our June 15th webcast. We estimate that our same store multifamily portfolio should contribute between $85.5.
Once she and $86.5 million of NOI for the year.
This represents approximately 2% to 4% same store multifamily growth from second half of 2021.
Trove is expected to contribute between 3 and $3.5 million from 2021 NOI and occupancy is now expected to stabilize near year end.
Once concessions burn.
$5 that are incurred pre stabilization, we expect trove to contribute 7% to $7.5 million of NOI annually, and then growth from there.
We have now fully invested and trust to all future lease up increases profitability.
Finally, as we've discussed at least for the balance of this year, we expect to retain Watergate 6 hundred's the.
Best office assets that we had and estimate that it will contribute between 12 and $12.5 million of NOI in 2021.
We've also previously disclosed we closed on the off the sales on July 26 for gross proceeds of $766 million with giving notice to redeem the $300 million of 2020.
22 bonds and expect that reduction to occur on or about August 26.
We also are now under definitive agreement to sell our remaining retail assets for $168.3 million.
And expect that transaction to close in the third quarter.
We plan to pay down $150 million of term loans.
Wonder about the timing of closing the retail sales.
Over the balance of the year, we expect to acquire $450 million from multifamily assets in the south eastern markets, we are targeting.
Our expectation is we will average initial per share cap rates in the low to mid force.
And we hope to exceed that in some submarkets we have Esther.
Total transaction costs for the transformation to be approximately $56 million inclusive of debt breakage cost.
As we also plan to pay down debt with sales proceeds.
We're not providing guidance on interest expense. It's the timing is not completely finalized although we have provided detailed guidance on debt repayments and its timing.
We also are not providing guidance on G&A per the year as we are executing many moving parts over the next 2 quarters, we expect to establish full year guidance for 2022 on our year end earnings call.
Finally, we reset our dividend to levels, we expect to cover in 2022 at a 75 per cent fad payout ratio or better.
Estimated believes our strategic executions will enable stronger fad growth going forward as we allocate capital out of office assets that had protracted downtime and recurring capex to NOI burden of 20% into multifamily assets for which we have maintained high occupancy excellent collections and historically required recurring capex.
2 NOI of only 6%.
Our leverage will be very low as we execute sales transactions and.
And when we are.
Fully reinvested, we believe we will be able to sustain operating at even lower leverage levels than our prior governors.
While we may be in the mid to high 5 times net debt to adjusted EBITDA.
Range in the first year after executing these transactions as we've progressed the second and third years of multifamily NOI growth, we would aspire to operate in the lower half of the 5% to 6 times range.
Assuming we deleverage plan we.
We will have very little debt maturing in the near term, none earlier than 2023, and our equity versus debt ratio is expected to get close to 80%.
At 20%, which would be very strong.
We have no secured debt in our capital structure, which provides us with flexibility to take on some agency debt or other secured debt as we acquire apartments.
Moreover, we believe we will continue to have most of our line available so strong liquidity will be maintained.
Prior to <unk>.
Redeeming the bonds and completing the sale of retail assets. We currently have approximately $135 billion of liquidity, including the full availability of our $700 million line of credit.
As we said when we announced the transformational asthma. These transactions will help us achieve the following 1 accelerate our transformation into a multifamily.
The family focused REIT.
Which is the strongest asset class we've operated in and further de risked our portfolio to provide us with capital to prudently invest in high growth southeastern markets..3 we said earnings growth and geographically diversify utilizing our research from the last several years.
Sure.
We mined and simplify our business model to promote sustainable growth and investor returns.
5 improve our cash flow characteristics, providing lower volatility and lower capex.
And greater growth going forward.
And finally delever to a targeted mid to high 5 times net debt to adjusted EBITDA.
<unk> <unk>.
Assuming the repayment of debt and the redeployment of cash into future multifamily investments.
And with that I will now turn the call back over to Paul.
Okay.
Thank you Steve.
We have operated both multifamily and commercial assets and we know from experience that multifamily is.
EBITDA for the class that provides the most attractive long term growth profile deliver stronger and steadier cash flows has lower capital requirements and generates more consistent returns.
Concentrating in multifamily strengthens our growth prospects and simplifies our story for investors, making access.
The ethanol, even stronger, which further improves our business and credit profiles.
Our research led multifamily investment strategy has led us to invest in value oriented multifamily assets that offer both favorable long term supply and demand fundamentals and expanding into selected southeastern markets.
To cap natural extension of the value creation strategy that we have proven in our local markets.
Our multifamily strategies are differentiated and our execution track record convinces us that this is the best path forward for our shareholders. Despite absorbing initial <unk> dilution.
For.
For the balance of 2021, we are focused on allocating capital to our targeted southeastern markets and taking steps to acquire additional talent and expand our presence in these markets maintaining our leasing momentum at Watergate 600, scaling our renovation program and sharpening our pencil as we evaluate.
As our shovel ready development opportunity at Riverside as well as others in our portfolio as the market improves.
We are excited about delivering value to our shareholders. In this next important phase of wash REIT.
We look forward to talking to many of you about our transformation over the coming weeks and months.
And we plan to provide updates as we move forward.
Now we would like to open the call to answer your questions.
Okay.
At this time, we'll be conducting a question and answer session.
I'd like to ask a question. Please press star 1 on your telephone keypad a confirmation.
<unk> tone will indicate your line is in the question queue. You May Press Star 2 if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before Christmas turkeys.
1 moment, please pool for questions.
Question is from Anthony per loan with J P. Morgan.
Please proceed with your question.
Okay. Thanks.
Buddy.
I guess first question is just on the deal pipeline.
As you are sticking with the $450 million to get done over the balance of this year is it all in your new markets or are you also seeing things in the D C Metro.
That might help with broken that out.
Hey, Tony It's Paul.
I would say our target is to place all of it.
In the new markets.
We have seen a couple of opportunities here that debt.
They have kept us interested but I think our big.
<unk> goal is try to is trying to geographically diversify.
Think as I've said in my remarks, we have a deal tied up that we hope to close in August we'll be able to give more color on that I would also say that the pipeline our pipeline probably similar to other folks and I.
I believe we address this in our June 15th Webinar.
We're seeing both 1 off transactions, Tony as well as.
We said, we had heard more portfolios would be coming to the market. We are evaluating some portfolio opportunities.
I think our bigger are.
Issue is to try to maintain disciplined underwriting, but also scale this opportunity appropriately and continue with our our diversification objectives.
Okay and to the extent portfolios.
Come available.
Are you willing to expand the target markets into.
I believe from other perhaps.
Southeast cities, if theres more attached to a portfolio or are you being pretty strict around the 3 areas you outlined.
I think our ideal situation would be in the 3 target markets.
<unk> been doing this a while have never seen the perfect portfolio that fits perfectly into the.
I think that if we had to take on a 1 off in other market in 1 or 2 assets too.
Make sure we accomplish the bigger objective I think we'd probably be open to that I would also say that given the <unk>.
<unk> highlighted.
Even on our webinar given the given the Apple.
Bye.
Probably structural opportunities for pre sales et cetera that could help us maintain our focus but sure I think we're trying to be open to.
To really provide the best execution for our shareholders.
And Paul I'll just add.
As we said in our webcast and I think in some of the questions that we've.
Hittite over the last week.
<unk> researched a lot of other markets and just as much as we have these 3 we wanted to be able to concentrate our expansion, but there are other markets that we do like if we got into that situation.
Yes.
Got it and then.
Is this transformation unfolds here.
Do you.
You start to put some brackets around thinking.
Thinking about building out property management platform and just internalizing the operations of multifamily for you all.
Absolutely and I think when there's a really good it's a good question we're clearly.
In a transition here, Tony I think we're moving fast.
But we are sunset.
Sunsetting part of our business and we are building out our infrastructure for the future and where geographically expanding I think.
Talked about this.
The webcast and we've been on the road right up until the quiet period period here.
We probably would've been able to execute our transformation a year earlier had it not been for the pandemic, but we.
We didn't sit on our hands.
And we worked with consultants and we've been building out our roadmap and our plans for the future and our infrastructure for geographic expansion.
Project debt.
Under way.
It's phased and I would think.
Mystically.
We will start seeing some of the benefits.
In the 8 months.
As we started to announce this into the project.
And what does that look like well, obviously, we're going to have the ability to geographically expand.
We have some third party sort of helping us in property management.
In transition.
But we see a lot of efficiencies coming.
Fifth as we as we implement this plan and we see margin improvement even in operations as we were able to build it out the way that that we're planning.
And most importantly, we see scalability, which provides additional efficiencies of margin and so we have to go through a transition but.
We have set up our capital structure.
So that we can it's not a 1 shot deal its not getting out the first $4.50, we've tried to clear the deck and R&R through our execution support and actually grow this company and this platform and achieve that scalability as we as we deliver all of that yes in.
And the last thing I'll add to that is.
This is Ben.
And now I'll be blunt, it's been an emotional week, you're saying goodbye to colleagues that we have had the privilege to work with as we work up through this transformation, but what's that has left us with an outstanding multifamily team to build a platform off of let's.
And let's not forget all the heavy lifting that this multifamily team has done to get us here and grow our NRI to.
Over 50%. So I think we have a good foundation to build off of but Steve is exactly right.
We've got we've got some wood to chop in front of us, but I think we're confident we can execute.
Got it and just last.
1 real quick from me on Watergate 600.
Remind us what should we watch is sort.
Gating factor in ultimately lighting not go too.
Well I mean, so if you look back at Watergate 600, I think we bought that at a nice basis, we went through.
I.
Successful renovation program.
Reentry has taken place as the Kennedy Center has reopened.
I think we've got.
Over 8 years of Walt.
On that on that property, we still think that there is.
Some nice leasing I mean, you've actually.
<unk> been in the property Tony So you know some of the panoramic views we have down there we've got some some.
Some space that we think we can backfill and then when we feel it's the appropriate time, we would look to monetize that asset.
Okay got it thank you.
Thank you Tony.
Again as a reminder, if anyone has any questions you May press star 1 on your telephone keypad.
It's your spot in the question and answer queue.
Okay.
Okay.
And if there are no further questions I'd like to turn the floor back over to management for any closing comments.
Yes, we'd like to thank you.
Again I'd like to thank everyone for your time and interest today, we will continue to update you as we progress our multifamily transformation and we look forward to speaking with many of you over the next several months.
Thank you everyone.
This concludes today's conference and you may disconnect your lines at this time.
Thank you for your participation.
[music].