Washington Real Estate Investment (WRE) Q2 2021 Earnings Call Transcript

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Washington Real Estate Investment (WRE 0.40%)
Q2 2021 Earnings Call
Jul 30, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to the Washington Real Estate Investment Trust Second Quarter Earnings Conference Call. [Operator Instructions] 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.

Amy Hopkins -- Vice President, Investor Relations

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 on 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 Riffee, 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.

Paul T. McDermott -- Chairman, President and Chief Executive Officer

Thank you, Amy, and it's good to have you back following your maternity leave.

Good morning, everyone and thanks for joining us today. Last evening, we released our second quarter earnings results Core FFO 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 15 is top of mind for investors and the key focus of this management team.

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 Southeastern markets, and the status of our value creation opportunities. Steve will discuss recent multifamily performance and trends, our 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 our priorities 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 office asset, Watergate 600, for 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 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 messaged on 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 a strategic transformation that has taken place over several years. We went from four asset classes to one, and we are moving forward as a multifamily REIT with proven research driven strategies, a solid 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 we also decreased leverage, 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, in multifamily we are experiencing positive drivers to fuel our growth from this time of 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 contrasts in growth prospects boosts our confidence that will create more values for our investors going forward through our portfolio recalibration.

We understand that these transactions are dilutive to earnings and FFO yet we believe they are initially NAV 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 15 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 to execute these transformative steps and have access to capital beyond that. Additionally, we have a road map to continue to grow and create value for our shareholders.

We are focusing on middle-income renters, which is a strong, underserved, and growing cohort in Southeastern markets that we are targeting, as well as here in DC where we have successfully been executing our affordability based investment and operational strategies. Over the past several months, we have been actively underwriting deals in the Southeastern markets where we believe our strategies can successfully achieve long-term rent growth and outperformance. 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, and Class B portfolio strategies. We are targeting submarkets with attributes that we believe are most likely drive rent growth and channelling our specific investment strategy to best create value, just as we've done in the Washington Metro region.

Our pipeline has been active, and while we have passed on some deals that do not fit our strategies, 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 strategies and our submarkets, 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 are targeting are projected to be among the best in the nation in population growth and net migration over the next decade, and the already strong rent growth that we've been tracking accelerated 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 RealPage.

New lease trade outs were even stronger, averaging 17.9% across the three markets and a 670 basis point inflection between April and June. Average concessions remained in the low-single digits in each market, averaging just 5.5%, catching 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 three markets offering concessions in the second quarter, down 630 basis points over the quarter.

Annual demand also serves across these markets as in-migration and household formation drove record setting absorption. Reported first quarter annual demand had already exceeded the 5-year average in each target market yet it jumped nearly 30% 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's second quarter annual demand topped 186% of its 5-year demand trend. 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 home based markets, we also have great optimism for growth ahead. The Washington apartment market also experienced a performance inflection during the second quarter with significant improvement from April through June, as reported by RealPage. 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's performance followed a similar pattern but with even stronger growth with year-over-year effective rent growth accelerating to 5.9% in June, 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% of 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 6,700 units, and is 96% occupied. Our average monthly rent is just under $1,700 per door. Our suburban Virginia apartments have performed well during the pandemic, and continue to do well, much like the Sun Belt markets, we have researched and analyzed 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, two-thirds of our current 2,800 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 December buy-ins and urban blended lease rates have turned positive on an effective basis. Meanwhile, suburban lease rate growth has been exceptionally strong, reaching over 5% on an effective basis for July move-ins.

We have now fully delivered and invested in Trove which delivered only $200,000 of NOI in the first quarter and approximately $425,000 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 push market rents by over 8% while also reducing concessions. We now expect Trove to stabilize near year-end as opposed to our prior expectation of May of 2022.

Our multifamily rent collections have remained strong at 99% throughout the pandemic as our research has led us to focus on renters 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 end of 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 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 rental market and limited competitive supply over the long-term in 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 diversify.

We are extremely grateful to all the WashREIT 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. We are augmenting our multifamily operational leadership and team for the new markets, and we are following the road map that we have created over the last year to build on our infrastructure for the future. We believe we will create efficiencies as well as further enable our ability to scale up very effectively.

And with that I will now turn it over to Steve.

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

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 and strategic differentiators that we believe will continue to help us succeed, recap our balance sheet focus 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 significant inflection 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 rents indicate further improvements throughout the summer months.

Rate growth for new lease executions has improved over 10% over the last seven weeks, on a gross basis. The average concession per unit for move-ins scheduled for July and August is 70% lower than the second quarter average, representing a $630 decline in concessions per unit.

Blended lease rate growth 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 two 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 has 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 5% thus far in July on a year-over-year basis. And urban new lease rates have reached their inflection and turn 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 move-in dates indicate further improvement.

Looking at our rents on our available homes, this upward trend is continuing into the third quarter. Applications and move-in activity remains strong as net applications increased 35% 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 renewal side, there have been very good demand and renewal lease rate growth is currently tracking above 3% on average, with suburban renewal lease rate growth tracking above 5% on an average.

Trove is now fully invested, and should begin to grow with NOI contribution significantly. Leasing momentum continues to grow with Trove now over 76% occupied and 81% leased. We expect Trove to be a key growth driver in 2022 and 2023.

As Paul said, two-thirds of our 2,800 unit renovation pipeline is in our suburban communities, where occupancy and effective lease rates are the strongest. When the pandemic hit, we temporarily paused our renovation program, but have since activated these programs at properties that have appropriate affordability gaps and new renewal lease rate growth. We began by rolling out market test renovations, winding up the materials and contracts, and executing the renovations at certain assets on turns. Year-to-date, we have fully renovated our 90 units and invested capital in upgrading 80 additional units. We are securing rent increases on renovated and improved units that meet or exceed our targeted ROIs and we are picking up the pace of renovations through the summer months while unit turnover is seasonally high. Just this month, we completed 30 renovations 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 was approximately $7 million or $0.08 per diluted share compared to a net loss of $5.4 million or $0.07 per diluted share in the prior year. Core FFO of $0.35 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 FFO per share declined by $0.04 due primarily to the impact of the pandemic on rental and other income on the comparative period basis, and higher interest in G&A expenses. Multifamily same-store NOI declined 2% on the 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. While revenue comparisons for this quarter are still negative relative to the prior year, we have seen multifamily lease rates increase significantly and sequentially since their December lows.

Following the significant inflection in lease rate growth, which started in the second half of June and into July, we expect improving multifamily same-store results during the second half of the year. Other same-store NOI declined 4.6% on the GAAP basis and 1.7% on 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 24,000 square feet of new office leases and approximately 88,000 square feet of renewal office leases in the second quarter. Office rental rate were flat on a GAAP basis and declined 4% on a cash basis for new office leases and increased 37% on the GAAP basis, 5% on the cash basis for office renewals. This renewal improvement was primarily related to the Sunrise lease at Silverline Center.

Our multifamily collections continue to be excellent, tracking well above national averages. We collected over 99% of cash and contractual rents during the first quarter, and our rent collections through July are in line with our quarterly trends. Year-to-date residents have and received over $1 billion of local government rent assistance. 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 lease and executed those very same strategies successfully today, including investing in our suburban apartments ahead of the pandemic as over 70% 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 steady, 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 exist as adjusted on a scale for 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 but understand the importance of leading indicators for rental growth beyond broad market statistics. Our tools include our predictive analytics capabilities using radian [Phonetic], the proprietary model developed by us with a research firm that analyzes employment and demographic data that we correlated with real estate data. We analyzed many factors to find the highest r-squared correlation predicting rent growth, which leads us to target vintages in submarkets with increasing mid-market jobs by analyzing job creation and expectancies for cohorts we target. Our analysis considers predicted job creation by submarket and the multiplier benefits of additional higher profile jobs, the patterns of in-migration as well as housing affordability and other factors to differentiate how we invest. Often the submarkets that attract the newest Class A developments in the high Class A acquisitions are far more competitive and have lower projected rate growth.

Another point investors acknowledged in our numerous post transformation meetings is that we are differentiating ourselves by maintaining lower leverage and a stronger unencumbered balance sheet with many small multifamily REITs. And we have the capital to reinvest from our transformative sales as well as having additional value in Watergate 600 to harvest, we maintain 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 by our office exposure. We expect to execute our strategy, create additional value, and win the supportive investors for further growth going forward.

Now turning to our outlook for the balance of the year. Updating our June 15 webcast, we estimate that our same-store multifamily portfolio should contribute between $85.5 million and $85 million of NOI for the year. This represents approximately 2% of 4% same-store multifamily growth in the second half of 2021. Trove is expected to contribute between $3 million and $3.5 million of 2021 NOI and occupancy is now expected to stabilize near year-end. Once concessions burn off that are incurred pre-stabilization, we expect Trove to contribute $7 million to $7.5 million of NOI annually, and then grow from there. We have now fully invested Trove so all future lease-up increases profitability.

Finally, as we've discussed, at least for the balance of this year we expect to retain Watergate 600, the best office asset that we had owned, an estimate that it will contribute between $12 million and $12.5 million of NOI in 2021. We've also previously disclosed, we closed on the after-sales on July 26 for gross proceeds of $766 million. We've given notice to redeem the $300 million of 2022 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 on or about the timing of closing the retail sales.

Over the balance of the year we expect to acquire $450 million of multifamily assets in the Southeastern markets we are targeting. Our expectation is we will average initial first year cap rates in the low to mid-fours, and we hope to exceed that in some of the markets. We have estimated total transaction costs for the transformation to be approximately $56 million, inclusive of debt breakage costs as we also plan to pay down debt with sales proceeds. We are not providing guidance on interest expense since 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 for the year as we are executing many moving parts over the next few 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% FAD payout ratio or better. We believe our strategic executions will enable stronger FAD growth going forward as we allocate capital out of office assets that have protracted downtime and a recurring CapEx to NOI burden of 20% and to multifamily assets for which we have maintained high occupancy, excellent collections, and historically required recurring CapEx to NOI of only 6%.

Our leverage will be very low as we execute sale transactions 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 progress to 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 the deleverage plan, 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% to 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 have acquire apartments. Moreover, we believe we will continue to have most of our line available so strong liquidity will be maintained. Prior to redeeming the bonds and completing the sale of retail assets, we currently have approximately $1.35 billion of liquidity, including the full availability of our $700 million line of credit.

As we said when we announced the transformation last month, these transactions will help us achieve the following, one, accelerate our transformation into a multifamily focused REIT, which is the strongest asset class we've operated in and further de-risk our portfolio. Two, provide us with capital to prudently invest in high growth of Southeastern markets. Three, we set earnings growth and geographically diversified utilizing our research in the last several years. Four, streamline and simplify our business model to promote sustainable growth and investor returns. Five, 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 range, assuming the repayment of debt and the redeployment of cash in the future multifamily investments.

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

Paul T. McDermott -- Chairman, President and Chief Executive Officer

Thank you, Steve. We have operated both multifamily and commercial assets, and we know from experience that multifamily of the asset class that provides the most attractive long-term growth profile, delivers stronger and steadier cash flows, has lower capital requirements, and generates more consistent returns. Concentrating on multifamily strengthens our growth prospects and simplifies our story for investors, making access to capital 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 the selected Southeastern markets is a natural extension of the value creation strategies 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 FFO dilution.

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 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 WashREIT. 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.

Questions and Answers:

Operator

At this time, we'll be conducting a question-and-answer session. [Operator Instructions] And our first question is from Anthony Paolone with J.P. Morgan. Please proceed with your question.

Anthony Paolone -- J.P. Morgan -- Analyst

Okay, thanks. Hi, everybody. I guess first question is just on the deal pipeline as you're 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 DC Metro that might help with build net out?

Paul T. McDermott -- Chairman, President and Chief Executive Officer

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 have kept us interested, but I think our big goal is try to -- is trying to geographically diversify. I think as I 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 believe we addressed this in our June 15 webinar, we're seeing both one-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 -- our issue is to try to maintain disciplined underwriting, but also scale this opportunity appropriately and continue with our our diversification objectives.

Anthony Paolone -- J.P. Morgan -- Analyst

Okay. And to the extent portfolios become available, are you willing to expand the target markets into other, perhaps, Southeast cities, if there is more attached to a portfolio? Or are you being pretty strict around the three areas, your end?

Paul T. McDermott -- Chairman, President and Chief Executive Officer

I think our ideal situation would be in the three target markets. Been doing this a while, have never seen the perfect portfolio that fits perfectly into the box. I think that if we had to take on a one-off in another market, one or two assets to make sure we accomplished the bigger objective, I think we'd probably be open to that. I would also say that given the, as you've highlighted, even on our webinar, given the appetite, they're probably structural opportunities for pretty sales etc. that could help us maintain our focus but sure. I think we're trying to be open to really provide the best execution for our shareholders.

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

And Paul, I'll just add, as we said in our webcast and I think in some of the questions that we've been asked over the past calls, we've researched a lot of other markets. And just as much as we have these three, we wanted to be able to concentrate our expansion, but there are other markets that we do like if we got into that situation.

Anthony Paolone -- J.P. Morgan -- Analyst

Got it. And then as this transformation unfolds here, when did you start to put some brackets around thinking about building a property management platform and just internalizing the operations of multifamily for you all?

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

Absolutely. And I think win is 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 sunsetting part of our business and we are building out our infrastructure for the future and more geographically expanding. I think we talked about this in the webcast and we've been on the road right up until the quiet period here. We probably would have been able to execute our transformation a year earlier had it not been for the pandemic, but we didn't sit on our hands. And we worked with consultants and we've been building out our road map and our plans for the future, and our infrastructure for geographic expansion. It's a project that's underway. It's phased and I would think realistically, we'll start seeing some of the benefits 15 to 18 months, once 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 where we have some third-party sort of helping us in property management in the transition. But we see a lot of efficiencies coming as we implement this plan and we see margin improvement, even in operations as we are able to build it out the way 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 one shot deal. It's not getting out the $450 million. We've tried to clear the deck and earn our -- through our execution a support and actually grow this company in this platform and achieve that scalability as we deliver all of that.

Paul T. McDermott -- Chairman, President and Chief Executive Officer

Yeah, and Tony, the last thing I'll add to that is, this has been a -- I'll be blunt, it's been an emotional week here, saying goodbye to colleagues that we've had the privilege to work with as we work up to this transformation. But what that has left us with is an outstanding multifamily team to build a platform off of. Let's not forget, all the heavy lifting that this multifamily team has done to get us here and grow our NOI to the -- to over 50%. So, I think we have a good foundation to build off of but Steve's exactly right. We've got some wood to chop in front of us, but I think we're confident we can execute.

Anthony Paolone -- J.P. Morgan -- Analyst

Got it. And just last one, real quick for me. On Watergate 600, remind us, what should we watch as the sort of gating factor and ultimately letting our go-to?

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

Well, I mean, so if you look back at Watergate 600, I think we bought that at a nice basis. We went through, I think a very successful renovation program as reentry has taken place and as the Kennedy Center has reopened. I think we've got over 8 years of Waltz on that property. We still think that there is some nice leasing. I mean, you've actually been in the property, Tony, so you know some of the panoramic views we have down there. We've got 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.

Anthony Paolone -- J.P. Morgan -- Analyst

Okay, got it. Thank you.

Paul T. McDermott -- Chairman, President and Chief Executive Officer

Thank you, Tony.

Operator

[Operator Instructions] And if there are no further questions, I'd like to turn the floor back over to management for any closing comments.

Paul T. McDermott -- Chairman, President and Chief Executive Officer

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.

Operator

[Operator Closing Remarks]

Duration: 40 minutes

Call participants:

Amy Hopkins -- Vice President, Investor Relations

Paul T. McDermott -- Chairman, President and Chief Executive Officer

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

Anthony Paolone -- J.P. Morgan -- Analyst

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