Washington Real Estate Investment Trust

Welcome to the Washington Real Estate Investment Trust first quarter earnings conference call. As a reminder, today's call is being recorded. Before turning the call over to the company's President and Chief Executive Officer, Paul McDermott, Drew Hammond, Vice President, Chief Accounting Officer and Treasurer will provide some introductory information. 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 these risks 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 and Financial Supplement, which were distributed yesterday and can be found on the Investor Relations page of our website. Participating in today's call with me will be Paul McDermott, President and Chief Executive Officer, Steve Riffey, Executive Vice President and Chief Financial Officer, and Grant Montgomery, Vice President and Head of Research. Now I'd like to turn the call over to Paul.

Thank you, Drew, and I appreciate you filling in for Amy on this call today while she's out. Good morning, everyone, and thanks for joining us today. Last evening, we released our first quarter earnings results, which reflect performance that was in line with our expectations. We are pleased to report that the gradual rebound in demand across our multifamily and commercial properties that commenced in January continued throughout the first quarter and into April. Looking ahead, we remain optimistic about the accelerating vaccine deployment which we anticipate will translate to increased visibility on our near-term performance, allowing us to reinstate full-year FFO guidance. We are now heading into the spring multifamily leasing season, and urban demand continues to rebound while our suburban portfolio fundamentals remain strong. Pricing trends are improving. and both the volume of concessions and average concession amount per unit continues to decline. We expect multifamily rents to show steady improvement as urban markets recover and concessions decline and burn off. Trove continues to lease up with increasing momentum, reaching 51% lease this week and remains on track to stabilize in the second quarter of 2022. Over the long term, our value-oriented multifamily portfolio is positioned very well with favorable supply and demand fundamentals. From a demand perspective, the Washington Metro region has a significant housing shortage that has been accumulating over many years and an affordability crisis that is only getting worse as the cost of home ownership continues to rise above affordable levels for median income earners. And from a supply perspective, while Class A supply has been growing, the majority of renters remain underserved by new supply because our region has not been producing housing product at the price point that would address the growing demand. Therefore, we expect demand for our value-oriented multifamily units, which are priced to target the largest, most underserved renter cohorts, to benefit from having a large and growing target market and limited competitive supply over the long term. In commercial, both new and renewal leasing activity have picked up significantly thus far this year. We have executed over 150,000 square feet of commercial leases in Q1 2021, which is 25% above our year-to-date leasing volume at this time last year. This amount includes backfilling a 21,000 square foot tenant at Arlington Tower with a new tenant through 2029. Since quarter end, we have signed a 74,000 square foot eight-year renewal with Sunrise Senior Living at Silver Line. Year to date, we have eliminated approximately 55% of our 2021 commercial lease expirations. Office touring and proposal activity increased in March to the highest level it has been since the pandemic hit. We currently have approximately 135,000 square feet of new and renewal commercial leases at LOI, including a 44,000 square foot renewal with a two-floor tenant at Arlington Tower and a five-year, 12,000 square foot extension at 1775 I Street. While office utilization remained relatively stable during the second half of 2020, we are now seeing more tenants returning to their office spaces. At year end, just over half of our spaces were being used by tenants, and that percentage has increased to over 60% and is on the rise as the pace of vaccinations rapidly increases. Alongside the rise in tenants returning to the office, we are experiencing an increase in parking income. In response to the increasing activity levels in the city, the district is phasing back in the parking restrictions that were eased at the onset of the pandemic. In an effort to capture more transient parking income, we recently rolled out new parking programs, including short-term passes or parking reservations, and we are experiencing a significant pickup in transient parking in April. We expect parking income to continue to grow going forward as we still have about half of our parking capacity available, which provides an alternative to public transportation for companies that want to provide options as their employees return to the office. Now, before turning the call over to Steve to discuss our financial performance and outlook, I would like to take a few minutes to discuss our strategy and key areas of focus as we continue to navigate through the recovery phase of the pandemic. First, we are focused on optimizing our daily pricing model for multifamily in order to capture increasing demand for apartments as renters, particularly younger renters, return to urban areas. Multifamily net applications remain strong at our urban properties and are up approximately 50% year-to-date and over 100% in March, leaving room to continue reducing concessions and increasing rents. Concessions are declining, and effective lease rates remain on an upward trend. Occupancy, excluding our two rent control properties, now stands at 95.8%, and our emphasis is increasingly focused on improving effective rents as we head into the spring leasing season. Our two rent-controlled urban properties, Kenmore and 3801 Connecticut, have experienced renewed strength recently, including Kenmore leasing 10 units last week, the highest amount since the start of the pandemic. This strength has driven the 30-day occupancy trend for rent-controlled assets above 94%. a 440 basis point improvement from 30 days ago. Second, we are focused on driving value creation through renovations. Two-thirds of our 3,000 unit renovation pipeline is in our suburban garden style communities, where occupancy remains strong and effective lease rates are positive on a blended basis. When the pandemic hit, we temporarily put our renovation programs on hold. yet continue to closely monitor each of our submarkets for rent growth and renovation potential. We are encouraged by the demand levels that we are seeing in nearly all of our suburban markets, which allow for rent increases to deliver an accretive ROI. Therefore, we have reactivated our renovation process and will continue to test the market and scale these programs as market conditions improve. Third, we are focused on driving new commercial leasing as our regional vaccination rates accelerate, schools return to in-person classes, and metro rail and bus ridership increases. We believe that these three factors will prove to be the key catalysts for driving new leasing decisions. We have positioned our portfolio to benefit from the rebound in new leasing activity with high quality, move-in ready space at price points and floor layouts that capture the highest volume of leasing in our region. Over half of our current vacancy is in Northern Virginia, where job growth and touring activity are strongest. Since we have no co-working tenants, all of our spaces are private, which allows tenants to control the health and safety of their environments. Our move-in ready spaces offer more flexibility than traditional leases. However, we do not offer month-to-month leases, which allows us to participate in the increasing demand for flexible office space while also maintaining our favorable weighted average lease term and preserving our opportunities for future portfolio transformation. We expect move-in ready space to translate into quicker lease commencements than spaces that require longer tenant build-outs. Lastly, we are focused on pursuing opportunities as part of the Wash REIT transformation. We continue to believe that transformation toward multifamily is in the best long-term interest of Wash REIT and our shareholders. This pandemic has reaffirmed our commitment to and the direction of our research-driven multifamily investment strategy. Our investment process includes an extensive evaluation of a wide range of ROI drivers using a dynamic proprietary system to evaluate investment performance metrics at both the market level and submarket level. We plan to continue to enhance and broaden the scope of our research as we evaluate and pursue opportunities for further transformation. And with that, I will turn it over to Steve to review our balance sheet, collection performance, first quarter results, and our outlook.