Elme Communities · NYSE:ELME
Elme Communities — Washington Real Estate Investment Trust — Investor Presentation (June 2021)
59 slides from Elme Communities's investor presentation, Jun 15, 2021
Slide 1: Accelerating Our Transformation into a Multifamily REIT
1 WASHREIT washreit.com Investor Presentation Accelerating Our Transformation into a Multifamily REIT June 15, 2021
Slide 2: Disclaimer and Forward-Looking Statements
2 WASHREIT washreit.com This presentation does not constitute an offer to sell or the solicitation of an offer to buy any securities of WashREIT, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qua
Slide 3: Topics of Discussion
3 WASHREIT washreit.com Our Foundation for Growth02 01 Strategic Transactions Overview TOPICS OF DISCUSSION Multifamily Expansion Strategy03
Slide 4: Strategic Transactions Overview
4 WASHREIT washreit.com STRATEGIC TRANSACTIONS OVERVIEW Trove Arlington, Virginia
Slide 5: WashREIT Has Allocated Capital to Its Strongest Asset Class
5 WASHREIT washreit.com Multifamily 51%Office 41% Retail 8% Q1’20211Q1’2013 Note: Refer to slide 2 for certain disclosure regarding Forward-Looking Statements and Strategic Transactions. Note: Portfolio composition based on Cash NOI contribution by asset class and geography. 1 Includes actual NOI of
Slide 6: Portfolio Mix: Transformation and Aspirations for the Future
6 WASHREIT washreit.com Office 5% Multifamily 95% DC 14% MD 10% VA 76% PORTFOLIO MIX Following Sales of Commercial Assets Before Reinvestment1 Note: Refer to slide 2 for certain disclosures regarding Forward-Looking Statements and Strategic Transactions. Note: Portfolio composition based on portfoli
Slide 7: Expected Office Portfolio Sale and Multifamily Acquisitions
7 WASHREIT washreit.com Expected Office Portfolio Sale • Gross proceeds of $766 million • Expected to close in July 2021 Multifamily Acquisitions • Proceeds fund active acquisition pipeline in identified Southeastern markets • Expected to redeploy cash proceeds through 2H 2021 Targeted Leverage3 Red
Slide 8: Transactions Highlights
8 WASHREIT washreit.com Accelerate WashREIT’s transformation into a multifamily REIT operating in the Washington, DC metro and Southeastern markets Provide financial flexibility to prudently invest in high-growth Southeastern region Significantly reset earnings growth profile and enhance geographic
Slide 9: Improved and Fortified Capital Structure
9 WASHREIT washreit.com Equity Market Capitalization $1,869M 77% Unsecured Debt $562M 23% $ 300 $ 283 $ 400 2021 2022 2023 2024 2025 2026 Thereafter IMPROVED AND FORTIFIED CAPITAL STRUCTURE Assumed $421 million net reduction in total debt and targeting net leverage in mid to high 5x range1 DEBT MATU
Slide 10: Components of Net Asset Value
10 WASHREIT washreit.com COMPONENTS OF NET ASSET VALUE Note: Refer to slide 2 for certain disclosures regarding Forward-Looking Statements and Strategic Transactions. 1 Trove expected to stabilize around year end 2021. Represents estimated Q2’2022 stabilized NOI for Trove excluding the impact of lea
Slide 11: Building Blocks to WashREIT's Story
11 WASHREIT washreit.com BUILDING BLOCKS TO WASHREIT’S STORY COMMERCIAL REAL ESTATE ESTIMATED 2021 NOI ($M)2 POTENTIAL MULTIFAMILY ACQUISITIONS NET LEVERAGE4 EST. CLOSING EST. PROCEEDS ($M) Expected Office Portfolio Sale1 July 2021 $766 Assumed Retail Dispositions Q3 2021 $170 + We anticipate our ex
Slide 12: Watergate 600 Class A Office Asset
12 WASHREIT washreit.com ACCENT IMAGE Place and image in this space. Resize and use the crop tool to fit on top of this box. WATERGATE 600 Class A Office Asset + After completion of the proposed office and retail transactions, Watergate 600 will be our sole remaining commercial asset + The iconic Wa
Slide 13: Expected Strategic Actions Timeline
13 WASHREIT washreit.com EXPECTED STRATEGIC ACTIONS TIMELINE June 2021 Announce agreement to sell office portfolio to Brookfield for $766 million in gross proceeds Announce LOI to dispose of 8 retail assets in Q3 2021 for approximately $170 million in potential gross proceeds Close on expected
Slide 14: Our Foundation for Growth
14 WASHREIT washreit.com OUR FOUNDATION FOR GROWTH
Slide 15: WashREIT Before We Start Expansion
15 WASHREIT washreit.com ~7.1k Multifamily Units4 + Portfolio of value-oriented multifamily properties located in high-growth Washington, DC metro submarkets + Approximately $450 million of cash available1 to capitalize on multifamily acquisition and development opportunities in high-growth Southeas
Slide 16: Our Multifamily Fundamentals Are Improving
16 WASHREIT washreit.com 75 105 135 165 195 225 255 Oct Nov Dec Jan Feb Mar Apr May Oct 2019-May 2020 Oct 2020-May 2021 -9% -8% -7% -6% -5% -4% -3% Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 93.5% 94.0% 94.5% 95.0% 95.5% 96.0% 3-Jan 24-Jan 14-Feb 7-Mar 28-Mar 18-Apr 9-May 30-May
Slide 17: Our Suburban Performance Remains Strong; Manassas Case Study
17 WASHREIT washreit.com 93.0% 93.5% 94.0% 94.5% 95.0% 95.5% 96.0% 96.5% + Our renovation platform is in motion in select submarkets, and we expect to continue to scale our programs as market conditions improve + Assembly Manassas is an example of one of our markets that has performed well this year
Slide 18: Portfolio Snapshot
18 WASHREIT washreit.com PORTFOLIO SNAPSHOT1 Note: Refer to slide 2 for certain disclosures regarding Forward-Looking Statements and Strategic Transactions. 1 Pro forma for the expected sale of the office portfolio and assumed retail dispositions. 2 For multifamily buildings, ending occupancy based
Slide 19: Current Multifamily Unit Distribution
19 WASHREIT washreit.com 95.4% Occupancy1 99% April 2021 Rent Collections2 ~$111k 3 Mi. Avg. HHI CURRENT MULTIFAMILY UNIT DISTRIBUTION ~80% of our multifamily units are currently located in Northern Virginia and over 30% are located in the suburbs Source: ESRI. Amounts and percentages as of May 31,
Slide 20: Multifamily Expansion Strategy
20 WASHREIT washreit.com MULTIFAMILY EXPANSION STRATEGY Riverside Alexandria, Virginia
Slide 21: Multifamily Benefits and Demand Drivers
21 WASHREIT washreit.com + Significant Demand Drivers Population growth, in-migration, extended renting tenure and unaffordability of for-sale housing for targeted renter segments + Stronger Rent Growth Driven by solid demand, rising home prices, and minimal new product at mid-range rents + Lower Re
Slide 22: Research: The Engine That Propels Us Forward
22 WASHREIT washreit.com RESEARCH: THE ENGINE THAT PROPELS US FORWARD + Powers our understanding and selection of markets, submarkets and assets for capital allocation. + Enables us to craft optimal approaches to creating value from assets, from renovation scoping to disposition timing. + Informs ou
Slide 23: Washington, DC Learnings for New Markets
23 WASHREIT washreit.com WASHINGTON, DC LEARNINGS FOR NEW MARKETS WashREIT’s strategies for expansion markets are a natural progression of our experience and learnings in the Washington, DC metro market. Our findings indicate: • Demand is deepest at mid-market rents. • Affordability is a pressing re
Slide 24: Multifamily Execution
24 WASHREIT washreit.com 0% 20% 40% 60% 80% 100% 2015 2016 2017 2018 2019 2020 2021 2021 Pro Forma TROVE 2020 RIVERSIDE APARTMENTS 2016 ASSEMBLY ALEXANDRIA 2019 CASCADE AT LANDMARK 2019 $1.6 Billion of Value-Oriented Multifamily Investments since 20152 Since 2013, assuming we complete these transact
Slide 25: Expansion Markets
25 WASHREIT washreit.com ACCENT IMAGE Place and image in this space. Resize and use the crop tool to fit on top of this box. EXPANSION MARKETS WashREIT expects to build upon its experience and success in the Washington, DC metro market to expand to Southeastern markets with strong growth prospects.
Slide 26: WashREIT Viewpoint on Markets
26 WASHREIT washreit.com WASHREIT VIEWPOINT ON MARKETS Regional economies drive real estate market performance As WashREIT acquires assets, we are also buying into the underlying economy that will power their performance in the years ahead. An economy built on the traded sectors – those producing go
Slide 27: Tech Drives GDP & Employment Growth
27 WASHREIT washreit.com TECH DRIVES GDP & EMPLOYMENT GROWTH Tech Metros Are Expected to Lead GDP and Job Growth Over the Medium Term Industrial mix of metro economies are expected to drive outperformance, with those economies with outsized exposure to tech and other innovation industries expected t
Slide 28: Population Growth and Net Migration
28 WASHREIT washreit.com Note: Refer to slide 2 for certain disclosures regarding Forward-Looking Statements and Strategic Transactions. Source: ESRI, Oxford Economics; May 2021. POPULATION GROWTH RATE 2020-2025 PROJECTED CUMULATIVE NET MIGRATION 2021-2029 Atlanta +383K Washington +207K Charlotte +2
Slide 29: Research Translates Employment to Demand
29 WASHREIT washreit.com Research Translates Employment to Demand WashREIT utilizes employment growth segmentation to screen markets and individual assets. Understanding employment composition and measuring demand against targeted income and rent-to-income bands provides actionable intelligence. Wit
Slide 30: The Multiplier Effect
30 WASHREIT washreit.com THE MULTIPLIER EFFECT Benefiting from Direct and Indirect Job Creation WashREIT’s strategies harness both demand growth driven by direct and indirect employment growth. High wage employment sectors, particularly innovation sectors, drive significant indirect job creation at
Slide 31: Housing Affordability: Targeting an Underserved Niche
31 WASHREIT washreit.com 0% 5% 10% 15% 20% 25% Atlanta Charlotte Raleigh/Durham Washington $25,000 to $34,999 $35,000 to $49,999 $50,000 to $74,999 $75,000 to $99,999 $100,000 to $149,999 $150,000 or more Targeted Middle Incomes WASHREIT washreit.com HOUSING AFFORDABILITY: TARGETING AN UNDERSERVED N
Slide 32: Competitive Supply Mitigation
32 WASHREIT washreit.com 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% $- $700 $800 $900 $1,000 $1,100 $1,200 $1,300 $1,400 $1,500 $1,600 $1,700 $1,800 $1,900 $2,000 $2,100 $2,200 $2,300 $2,400 $2,500 $2,600 $2,700 $2,800 COMPETITIVE SUPPLY MITIGATION Total Market Distribution New Deliveries Distribution 2
Slide 33: Rent Growth: Lower Rents in Older Vintages Outperform
33 WASHREIT washreit.comWASHREIT washreit.com RENT GROWTH: APARTMENTS WITH LOWER RENTS IN OLDER VINTAGES OUTPERFORM WashREIT’s predictive analytics model, RADIANT, has uncovered a consistent inverse relationship between Effective Rent and Year-Over-Year Effective Rent Change: Where effective rent is
Slide 34: WashREIT Portfolio Strategies
34 WASHREIT washreit.com WASHREIT PORTFOLIO STRATEGIES We target submarkets with attributes we believe are most likely to drive rent growth, tailoring our specific investment strategy to best create value. Vintage: 2000’s Rent Growth Drivers: Operational Improvements, Unit Upgrades, Prop-Tech, Subma
Slide 35: Primary Resident Segmenting and Strategy
35 WASHREIT washreit.com PRIMARY RESIDENT SEGMENTING AND STRATEGY A diverse set of renters across markets and prices points creates greater portfolio stability. CLASS A- RENTERS CLASS B VALUE-ADD RENTERS CLASS B RENTERS • Mix of single householders and married couples in their mid-20s to late-30s. •
Slide 36: Portfolio Value Proposition for Residents
36 WASHREIT washreit.com PORTFOLIO VALUE PROPOSITION FOR RESIDENTS We approach renters, regardless of their rental price point, with a specific value proposition: living in a WashREIT apartment will provide you the best balance of price, quality and resident experience that fits your budget. Value-c
Slide 37: Proven Strategy: Class A- (Yale West)
37 WASHREIT washreit.com 1 Effective rent premium for properties delivered since 2017 within the WashREIT asset’s submarket. 2 Recent Average Effective Rents as of May 31, 2021. 3 Collections as of June 7, 2021. 4 Occupancy as of May 31, 2021. PROVEN STRATEGY CLASS A- Yale West Quick Facts Location:
Slide 38: Proven Strategy: Class B Value-Add (The Wellington)
38 WASHREIT washreit.com PROVEN STRATEGY CLASS B VALUE-ADD The Wellington Quick Facts Location: Arlington, VA Vintage: 1960 Acquired: 2015 Units: 711 Located in Arlington, VA, this asset was targeted for the strong economic, employment, and rent growth characteristics of the Columbia Pike submarket,
Slide 39: Proven Strategy: Class B (Assembly Leesburg)
39 WASHREIT washreit.com PROVEN STRATEGY CLASS B Assembly Leesburg Quick Facts Location: Leesburg, VA Vintage: 1986 Acquired: 2019 Units: 134 Assembly Leesburg was targeted for the strong economic, employment and rent growth characteristics of its submarket. Loudoun County is the fastest growing cou
Slide 40: Value-Add Programs
40 WASHREIT washreit.com VALUE-ADD PROGRAMS FULL RENOVATION KEY METRICS Avg. cost per unit $18-$22,000 $10-$13,000 $5-$7,000 Avg. monthly premium $260 $110 $100 ROI 14%-15% 10%-11% 18%-20% BEFORE UNIT UPGRADES Current Opportunity + ~2,800-unit renovation pipeline + Historically, ~600 unit renovation
Slide 41: Assembly Alexandria Case Study
41 WASHREIT washreit.com Assembly Alexandria Assembly Alexandria is a 532-unit, low-rise property built in 1988 and acquired by WashREIT in 2019. We began an asset repositioning for the property in 2020 including a modernization of the club room, activation and programing of underutilized common are
Slide 42: Prepared to Move Now
42 WASHREIT washreit.com PREPARED TO MOVE NOW + Leveraging our proven relationship with a third- party property manger to immediately ramp up operations of acquired properties + Expanding our multifamily team with leadership in our Southeast expansion markets + Building our multifamily operating pla
Slide 43: Delivering on ESG Priorities
43 WASHREIT washreit.com “The problem is there’s no moderate-income housing for people to move up from lower-cost housing, or to move down from an expensive apartment if their circumstances change. REITs can provide investment into that middle level of housing,” Christopher Ptomey Executive Director
Slide 44: Transactions Highlights
44 WASHREIT washreit.com Accelerate WashREIT’s transformation into a multifamily REIT operating in the Washington, DC metro and Southeastern markets Provide financial flexibility to prudently invest in high-growth Southeastern region Significantly reset earnings growth profile and enhance geographic
Slide 45: Estimated 2021 NOI Assumptions
45 WASHREIT washreit.com “Estimated 2021 NOI” illustrates the estimated 2021 NOI from our existing properties, excluding NOI attributable to office assets expected to be sold in the office portfolio sale and to our retail assets, which are assumed to be sold in 2021 which management believes is impo
Slide 46: Definitions
46 WASHREIT washreit.com DEFINITIONS This investor presentation includes certain forward-looking non-GAAP information. Due to the high variability and difficulty in making accurate forecasts and projections of some of the information excluded from these estimates, together with some of the excluded
Slide 47: Reconciliations
47 WASHREIT washreit.com RECONCILIATIONS
Slide 48: Pro Forma Net Operating Income
48 WASHREIT washreit.com PRO FORMA NET OPERATING INCOME (In thousands) (Unaudited) Three Months Ended March 31, 2021 Multifamily Office Corporate and Other Total Real estate rental revenue $ 36,132 $ 28,599 $ 4,902 $ 69,633 Real estate expenses (15,172) (10,117) (1,405) (26,694) Net operating income
Slide 49: Net Operating Income (Q1 2013)
49 WASHREIT washreit.com NET OPERATING INCOME (In thousands) (Unaudited) Three Months Ended March 31, 2013 Multifamily Office Medical Office Retail Total Real estate rental revenue $ 13,333 $ 38,729 $ 11,028 $ 13,834 $ 76,924 Real estate expenses (5,390) (14,078) (4,058) (3,565) (27,091) Net operati
Slide 50: Pro Forma Capital Structure
50 WASHREIT washreit.com PRO FORMA CAPITAL STRUCTURE (In thousands) (Unaudited) Fixed Rate Bonds Term Loans Credit Facility Equity Market Capitalization Total Capital Structure as of March 31, 2021 $ 700,000 $ 250,000 $ 33,000 $ 1,869,000 (1) $ 2,852,000 24 % 9 % 1 % 66 % Pro forma adjustments: Repa
Slide 51: Pro Forma Assets and Liabilities
51 WASHREIT washreit.com PRO FORMA ASSETS AND LIABILITIES (In thousands, except per share data) (Unaudited) WashREIT as of March 31, 2021 Office Portfolio (1) Retail Portfolio (2) Pro Forma Assets Land $ 551,578 $ (217,335) $ (32,534) $ 301,709 Income producing property 2,443,104 (829,545) (129,892)
Slide 52: Net Operating Income (Twelve Months 2020)
52 WASHREIT washreit.com NET OPERATING INCOME (In thousands) (Unaudited) Twelve Months Ended December 31, 2020 Multifamily Office Retail Total Real estate rental revenue $ 145,045 $ 132,327 $ 16,746 $ 294,118 Real estate expenses (58,115) (49,452) (5,342) (112,909) Net operating income (NOI) $ 86,93
Slide 53: Same-Store Portfolio NOI Detail 2020
53 WASHREIT washreit.com SAME-STORE PORTFOLIO NET OPERATING INCOME (NOI) DETAIL (In thousands) (Unaudited) Twelve Months Ended December 31, 2020 Multifamily Office Corporate and Other Total Real estate rental revenue Same-store portfolio $ 97,894 $ 119,264 $ 16,746 $ 233,904 Non same-store 47,151 13
Slide 54: Same-Store Portfolio NOI Detail 2019
54 WASHREIT washreit.com SAME-STORE PORTFOLIO NET OPERATING INCOME (NOI) DETAIL (In thousands) (Unaudited) Twelve Months Ended December 31, 2019 Multifamily Office Corporate and Other Total Real estate rental revenue Same-store portfolio $ 98,455 $ 117,501 $ 18,990 $ 234,946 Non same-store 27,676 46
Slide 55: Same-Store Portfolio NOI Detail 2018
55 WASHREIT washreit.com SAME-STORE PORTFOLIO NET OPERATING INCOME (NOI) DETAIL (In thousands) (Unaudited) Twelve Months Ended December 31, 2018 Multifamily Office Corporate and Other Total Real estate rental revenue Same-store portfolio $ 95,194 $ 128,201 $ 18,062 $ 241,457 Non same-store — 50,273
Slide 56: Same-Store Portfolio NOI Detail 2017
56 WASHREIT washreit.com SAME-STORE PORTFOLIO NET OPERATING INCOME (NOI) DETAIL (In thousands) (Unaudited) Twelve Months Ended December 31, 2017 Multifamily Office Corporate and Other Total Real estate rental revenue Same-store portfolio $ 70,203 $ 137,447 $ 17,593 $ 225,243 Non same-store 25,047 29
Slide 57: Same-Store Portfolio NOI Detail 2016
57 WASHREIT washreit.com SAME-STORE PORTFOLIO NET OPERATING INCOME (NOI) DETAIL (In thousands) (Unaudited) Twelve Months Ended December 31, 2016 Multifamily Office Corporate and Other Total Real estate rental revenue Same-store portfolio $ 55,333 $ 126,959 $ 61,566 $ 243,858 Non same-store 30,431 38
Slide 58: Same-Store Portfolio NOI Detail 2015
58 WASHREIT washreit.com SAME-STORE PORTFOLIO NET OPERATING INCOME (NOI) DETAIL (In thousands) (Unaudited) Twelve Months Ended December 31, 2015 Multifamily Office Corporate and Other Total Real estate rental revenue Same-store portfolio $ 48,739 $ 149,664 $ 56,762 $ 255,165 Non same-store 19,803 24
Slide 59: Accelerating Our Transformation into a Multifamily REIT
59 WASHREIT washreit.com Investor Presentation Accelerating Our Transformation into a Multifamily REIT June 15, 2021
Washington Real Estate Investment Trust — Investor Presentation (June 2021) on 6ix