Elme Communities (ELME) Earnings Call Transcript & Summary

Welcome to the Washington Real Estate Investment Trust investor presentation, accelerating our transformation into a multifamily REIT. As a reminder today's presentation and webcast is being recorded. I am Drew Hammond, Vice President, Chief Accounting Officer and Treasurer, and would like to share the following information before we get started. Please note that forward-looking statements may be made during this discussion. Such statements involve known and unknown risks and uncertainties, including those related to our strategic transactions, 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. There is no assurance that we will execute the described transactions and strategies, including the expected dispositions, repayment of debt and redeployment of proceeds into additional multifamily assets on the terms and timing anticipated or at all. Reconciliations of the GAAP and non-GAAP financial measures discussed in this presentation are available in the materials we are presenting and can be found on the Investor Relations page of our website. Participating in today's presentation today are Paul McDermott, President and Chief Executive Officer; Steve Riffee, Executive Vice President and Chief Financial Officer; and Grant Montgomery, Vice President and Head of Research. Now I'd like to turn the presentation over to Paul.

Thank you, Drew. Today, we are pleased to announce a significant step in our transformation into a multifamily REIT and thus accelerating the expansion of our successful strategic plans. Our strategies target, the Class A minus, Class B value-add and Class B segments of the multifamily market, focusing on the deepest part of the demand curve, the mid-market renter while minimizing new supply competition. Our research on underserved middle-income renters and markets poised for strong sustained demand, has led us to select the southeastern markets of Atlanta, Raleigh/Durham and Charlotte for geographic expansion. Expansion into these markets will diversify our geographic concentration risk while providing opportunities for additional growth, driven both by current and projected long-term rent growth outperformance. We are also strengthening our balance sheet as we will simultaneously further delever and increase our flexibility to allocate capital to our strongest asset class. While we believe this is a NAV neutral series of transactions initially less transaction costs, we are confident we are allocating capital in order for NAV to be greatest moving forward with our research-led multifamily portfolio and stronger balance sheet. Today, we would like to walk you through our transactions, our transformation and our strategy and show you the compelling deep research that we believe supports the expanded execution of our multifamily strategy. We believe our concentration in multifamily simplifies our story for investors, making access to capital even stronger and further improves our business and credit profiles. Of the asset classes we have operated, we will now be fully committed and focused on the sector we believe delivers the stronger and steadier cash flows and lower capital requirements, which, coupled with lower leverage, makes the company stronger. This is a transformation reset that we believe will allow us to grow and create the greatest long-term value for our investors going forward. With that said, Steve, Grant, and I will walk you through what we are executing and our plans that allow us to substantially complete our transformation to a multifamily REIT following several years of repositioning. Let's move to Slide 5 and review our progression to date as we allocated capital to multifamily and the specific geographies that our internal research has indicated, has the strongest dynamics. In 2013, we were 16% multifamily. And pro forma as of March 31, we have made tremendous progress elevating multifamily to more than half of our portfolio at 51%. Similarly in our region, our research led us to allocate capital to Virginia, the growth engine of the Washington metro region and further into the suburbs, where 75% of household formations will occur over the next few years. This diversification of renter base demonstrated its strength during the pandemic as our suburban expansion was validated. Turning to Slide 6. We illustrate our anticipated portfolio mix following these transactions, which includes retaining our best office asset for the near-term Watergate 600 that only represents approximately 5% of the square footage of the assumed total portfolio going forward. We believe that it will provide greater value if sold separately and will look to do so as soon as practicable. We initially expect these transactions to allow us to geographically expand into southeastern markets and aspire to achieve further diversification of our geographic weighting of the portfolio. We expect to do so primarily by growing the company and not recycling assets as we have had to do in the past to reach this point. Steve will cover the next few slides before I pick it back up.

Thanks, Paul. I'm now on Slide 7, which is a summary of sources and uses of funds, reflecting the magnitude of our transformative steps. As Paul explained today, we are announcing an agreement to sell 12 office assets for $766 million and expect the transaction to close in July. We are also engaged in a process to sell our remaining retail properties. The 8 retail assets are currently under LOI for approximately $170 million. We believe those sales are likely to be completed in the third quarter. The total estimated proceeds for both transactions is expected to be approximately $935 million. Again, that excludes our best office asset, Watergate 600, and we will continue to evaluate opportunities to create optimal value with it going forward. For the remainder of 2021, we are currently estimating that we will acquire $450 million of apartments in Southeastern markets that we will discuss momentarily. We believe we can deploy this amount of capital, as evidenced by our ability to acquire more than $530 million of multifamily properties in 2019, including the acquisition of the assembly portfolio. Furthermore, we are delevering by paying down an assumed $421 million of net debt, which will include redeeming all of the $300 million of bonds maturing in 2022, and paying down $150 million of the term loan that matures in 2023. Our leverage will be very low as we execute the sale transactions. But when 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 5x 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 6x range. Turning to Slide 8. We believe these transactions will help us achieve the following: one, accelerate our transformation into a multifamily focused REIT, which is the strongest asset class we have operated in and further derisk our portfolio. Two, provides us with capital to prudently invest in high-growth southeastern markets. Three, reset earnings growth and geographically diversified, utilizing our research from 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, lower CapEx and greater growth going forward. And finally, delever to a target mid- to high 5x net debt to adjusted EBITDA range, assuming the repayment of $421 million of debt and the redeployment of cash into future multifamily investments. Moving to Slide 9. This will further improve and fortify our capital structure by operating at targeted lower leverage levels on a sustained basis. We plan to repay debt and reinvest in apartments, thus improving both sides of the balance sheet. Assuming we delever as planned, we will have very little debt maturing in the near term, none earlier than 2023, and our equity ratio versus debt is expected to get close to 80% to 20%, which will be very strong. As I said, we expect to operate at lower targeted leverage levels, and 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 have most of our line available, so strong liquidity will be maintained. Now I want to take a minute to discuss Slide 10. Despite the expectation that the transaction will be dilutive to FFO as we sell office assets at an estimated forward GAAP cap rate of approximately 7.75% based on estimates that are likely to face even more headwinds than we allow for. With the cash range slightly wide of that. Invest in multifamily assets within this with an estimated initial cap rate in the low 4s, averaging in the high 4s over the first 3 years, we're hoping to do better than that in some markets and pay down debt at lower interest rates. We believe these transactions are initially NAV neutral, excluding incurring transaction costs. Additionally, we fundamentally believe the trajectory of our new multifamily concentrated NAV will grow much faster and be worth much more than the commercial portfolio we are trading out of, and that by deleveraging further and strengthening the balance sheet, we will be able to create greater long-term value. We are allocating capital out of office assets, where we have experienced 20% recurring capital cost to NOI levels into multifamily assets where we are experiencing 6% or less recurring capital expenditures to NOI. We believe the CapEx flow for office is more likely to get worse going forward. And this is a stronger net cash flow allocation on a relative basis. We do not publish our estimate of NAV, but on this slide, we are providing a summary of our disclosures that make up the main components that can be used to derive an estimated NAV. We disclose the NOI components that we just reported for the first quarter. We assumed proceeds of asset sales, the reported CIP balance and other assets and liability from our March 31 balance sheet adjusted for the assumed sale of our office and retail portfolios. And our share count. Before I turn it back over to Paul, Slide 11 summarizes the building blocks to our story going forward. We will continue to own our existing same-store multifamily portfolio. The Trove is now fully invested and should begin to grow its NOI contribution significantly. In the first quarter, it contributed only $200,000 of NOI. For 2021, we assume that it will contribute between $2.75 million and $3.25 million. Once stabilized and lease-up concessions from prestabilization burn off, we expect it to contribute between $7 million and $7.5 million annually and grow from there. I will now turn it back over to Paul.

Thanks, Steve. Let me talk about Watergate 600 on Slide 12, which will be our sole remaining commercial asset, assuming we complete the sale of the office and retail assets, as previously discussed. It is an iconic Potomac riverfront asset and was very much desired in the office portfolio transaction, but we believe we can extract the best value for it separately. It has the longest weighted average lease term of the portfolio and is a Class A asset adjacent to the Kennedy Center with state-of-the-art amenities and a panoramic river, monument and rooftop views. We expect to harvest greater value for it when it is most practical and thus have not included it in the expected transactions we are reviewing today. We believe it provides future upside to the objectives we have laid out today. Before we get the strategy and our investment plans, I want to go through our expected strategic actions time line on Slide 13. It started today, when we announced we are under contract for the sale of the office portfolio excluding 1 asset for $766 million. We expect to close that sale in July. Additionally, we signed a letter of intent to fill the remaining retail assets, we are estimating those proceeds to be approximately $170 million. We are currently looking to expand into 3 southeastern markets where our research has long supported sourcing multifamily acquisition opportunities that fit our strategy that we will discuss later, and we will look to close on apartment acquisitions over the balance of 2021. We plan to redeem the $300 million of 2022 bonds in the third quarter once the office portfolio sale closes and plan to play down $150 million of the term loan in the third quarter in conjunction with the expected retail sales. Trove continues to lease-up with very strong momentum and is now over 60% occupied. We expect it to stabilize occupancy around year-end 2021. Let's quickly recap the foundation that we start with after we complete the transformative asset sales before we transition to our research-driven multifamily strategies. Moving to Slide 15. Our current same-store multifamily portfolio has approximately 7,100 units and is over 95% occupied as of May 31. Our average monthly rent is just under $1,700 per door. We currently have a renovation pipeline of over 2,800 units that we expect will generate double-digit returns over the next few years. Turning to Slide 16. Consistent with what we said on our Q1 2021 earnings call, multifamily fundamentals continue to strengthen as we are now in the prime leasing season. We are seeing significant improvement in urban net applications, fewer concessions, effective rent strengthening and occupancy improving. All are important trends as we come out of the pandemic into the stronger leasing season. Slide 17 shows that our suburban multifamily performance was strong throughout the pandemic and remains very strong today. Our research and strategy led us to diversify our renter base into the suburbs in 2019, and these submarkets have performed strong ever since. Our Virginia suburban apartments performed like southeastern markets during the pandemic and continue to strengthen as lease rates are improving more quickly than in urban submarkets. That said, urban submarkets continue to strengthen from December pandemic lows and appear to be on the cusp of turning positive. Additionally, we have reactivated our renovation program that select assets as we continue to test the market and plan to scale as conditions improve. Continuing with the review of the post transformative asset sales foundation that we built on Slide 18 shows a snapshot of our multifamily portfolio and Watergate 600. The chart on the right shows the distribution across our multifamily strategies that we execute today and momentarily, we'll explain how they drive our expansion plans going forward. Finally, Slide 19 captures today's distribution of multifamily units that we plan to enhance through expansion going forward. It also shows that as of May 31, we are over 95% occupied and have excellent resident credit having collected 99% of rents. As I noted before, research led us to diversify our resident base with 1/3 of our residents located in strong suburban locations. Our research always focuses on the resident, the economy, jobs and other demand drivers, as you can see, the demographics are strong surrounding our apartments. Now with that foundation, let's look at our expansion strategy to add even more long-term value creation. As we turn to Slide 21, let's stop for a moment and make perhaps the most important point here. We have operated both multifamily and commercial assets. We know from this experience that multifamily is the asset class that provides the most attractive long-term growth in NAV, as we will outline on this slide. Concentrating in this asset class strengthens our growth prospects, and we believe it will create the greatest value for our stakeholders. As we allocate more capital to multifamily and geographically expand, it should enhance returns while significantly improving our business and credit profile. So let's talk why multifamily? First, there are significant demand drivers supporting continued growth. Second, it offers stronger rent growth driven by demand, rising home prices and minimal new product at midrange rents. Third, it requires significantly less CapEx. Next, credit risk is low and much more diversified with minimal downtime between residents, resulting in steady, strong cash flows, which will allow us to operate at steadier EBITDA levels and lower leverage levels. And finally, multifamily generates more consistent returns and is supported by a more diversified resident base. Now I'd like for Grant to walk you through how we use research to power our capital allocation model and also several of our value creation and operating levels.

Thanks, Paul. I'll start with Slide 22. We do use research as a strategic differentiator in a variety of ways. First, research powers our understanding and selection of market, submarkets and assets for capital allocation, which I'll be discussing in greater detail as we move through the presentation. Research also enables us to craft optimal approaches to creating value from assets from renovation scoping, the disposition timing. It also informs our services and amenity offerings so that we can provide the best resident experience. Research has also been integral to the planning of our operating platform, allowing us to bypass legacy restraints and optimize operational design. Turning to Slide 23. WashREIT's strategies for expansion markets are really a natural progression of our experience and learnings in the Washington, D.C. Metro market. So what have we learned? First, demand is deepest at midrange rents. Second, affordability is a pressing rental issue and multiple price points across the midrange rent spectrum. And third, rents can be consistently grown even in a high supply market, if an asset's price point doesn't compete directly with new product price points and wages for mid-range renters are growing. Paul, perhaps you can comment on our execution track record here in the Washington metro area before I tie it to the expansion markets.

Sure, Grant. I'll go to Slide 24, and that is just the point. We have an excellent execution track record. We have done this in grown multifamily NOI from 16% in 2013 to 51% on a pro forma basis at the end of the first quarter of 2021. Pre COVID, we averaged 3.5% NOI growth per year and counting the recent COVID year 2.6% annually over 5 years. We have generated renovation returns of 10% to 20% for 1,800 units. We have leveraged that covered land play with 30% to market basis discount into a value-add development, Trove. Finally, as we said before, our research led suburban multifamily acquisition was the right call as it outperformed during the pandemic. With that said, I will give it back to you, Grant, to lay out our expansion strategy and supporting research.

Thanks, Paul. I'm now on Slide 25. As we have progressed our portfolio transformation in the Washington, D.C. Metro market over the past several years, we've also been exploring potential expansion markets, and our research has led us to the southeast. In particular, the markets of Atlanta, Raleigh/Durham and Charlotte. We believe that our strategies can be successful in these markets, diversifying our geographic concentration risk while providing opportunities for additional growth. Driven both by current and projected long-term rent growth outperformance. As Paul noted earlier, growth of our portfolio over the midterm will rebalance our asset allocation toward these southeast markets. While retaining a significant presence in the Washington, D.C. Metro region. Turning to Slide 26. The first step in our exploration of expansion has been exploring individual markets, economies and labor markets. This critical first step flows from our fundamental belief that when we acquire assets in new markets, we're also acquiring the underlying economy that will power their performance. Our market selection is built on this viewpoint. Economies with diverse innovation industries will benefit from outsized job creation, wage growth and in-migration in the years ahead. Dynamic economies provide strong foundation of demand upon which to grow our portfolio. Continuing on, as Slide 27 illustrates, our existing and targeted markets are projected to benefit from their industrial mix with their outsized exposure to tech and other innovation industries driving outperformance in both GDP and employment growth over the medium term. Continuing on to Slide 28, we want to make this important point. This employment growth outperformance creates a virtuous feedback loop with in-migration. Our targeted markets across the southeast are projected to be among the best in the nation in population growth and net migration over the next decade. Driving strong sustained apartment demand in these markets. Slide 29 illustrates a critical pillar of our research methodology. Strong employment growth is a good predictor of apartment demand. But strong employment growth at income levels aligned with our strategies in submarkets is an even better predictor. We measure employment depth and growth at our strategies targeted income bands by region, submarket and asset locations to invest into the path of growth with the appropriate strategy. These insights enable us to best tap into the underlying employment strengths and tailor our approach to capital allocation. Within our targeted markets, not only is there strong projected employment growth, but our strategies are positioned to capture a growing share of the total demand at the income bands they serve. Furthermore, as Slide 30 illustrates, we go a step further and see indicators supporting sustained strong rent growth when we allocate capital. We look at the multiplier effect, not only focusing on direct employment growth, but indirect employment creation as well. High wage employment sectors, particularly those in key growth industries, drive significant indirect job creation and more moderate wages through their job multiplier effect. So many of the direct jobs produced in these key growth industries pay high income wages that make homeownership or luxury rentership more likely. In aggregate, the indirect jobs created at our rental strategies targeted mid-level income bands are actually more numerous, creating more demand depths at mid-market wages. Regional and submarket specific analyses such as these help us measure demand and tailor appropriate strategies to best capture it. Let's turn to Slide 31 now. A key topic that we've discussed in the past, and we'll continue to focus on its housing affordability. Under production of housing of all types, this is an issue we've discussed with investors for year in the context of Washington, but it's also a national issue, creating affordability pressures, particularly at mid-range price points. Driven by rising land, labor and commodities prices and the regulatory environment. Our strategies are focused on middle incomes and midrange rental price points, which make up the largest share of apart demand in each of our targeted markets, yet for only which a limited share of new supply is affordable. Slide 32 demonstrates how we intend to mitigate risk of competing with new supply. The mismatch of demand and supply is visible in this chart, with the vast majority of new product targeted and price for the upper end of the market. By targeting the lower range of Class A minus rents, priced below 110% of market median, and Class B priced below 95% of market median, we reduced direct competition with new deliveries while focusing on the high demand mid-market. In Atlanta, for example, illustrated here, just 12% of new products delivered since 2017 is priced below 110% of the market median, while just 1% is priced below 95% of market median. I'll discuss how this research is applied to our strategies in just a moment. I'm now moving to Slide 33. Earlier, I spoke about how we use research in multiple ways across our company. Our part of that approach is also continually improving our research methods to increase our chances for success. One such example is the use of our predictive analytic model, RADIANT, which enables us to target price points in submarkets with greater probability of rent growth outperformance. For example, our research has proven out a consistent inverse correlation between rent levels and effective rent change. This relationship has resulted in a significant effective same-store rent growth outperformance of older vintages versus newer Class A plus product built over the past 5 years. Now let's break down our portfolio strategies on Slide 34. Our research forward approach has also been integral to the development of our successful portfolio strategies. We intend to utilize the learnings from the Washington, D.C. Metro market, Paul discussed earlier, to continue our growth as we geographically diversify. Materially, Paul will walk you through a few case studies of our strategies have been successfully proven out in the Washington, D.C. Metro region. Going forward, our strategies will harness the strong demand in southeastern markets, target the deepest demand segments of which some are also somewhat sticky and therefore, rent for longer and that simultaneously have market constraints from providing new products to serve them. Each strategy also has distinct rent growth drivers as well as vintage and price point parameters. Our Class A minus strategy is focused primarily on 2,000 assets, generally in the 100% to 110% of market median rent range. Rent growth drivers for this strategy include operational improvements, unit upgrades, proptech, submarket rent growth and future renovations. Our Class B value-add strategy is focused primarily on '80s, '90s and in some cases, 2000 era assets. Generally at 80% to 95% of market median pre renovation rents. Rent growth drivers for this strategy include operational improvements, full renovations and submarket rent growth. Our Class B strategy is similarly focused on '80s through 2000 era assets at 80% to 95% of market median rents. However, no immediate value-add is programmed with rent growth in the near term, driven by operational improvements, and submarket rent growth, but future renovations is an option when market conditions are right. We align these 3 strategies for submarket attributes to drive rent growth across our portfolio. Slide 35 explains our 3 strategies are focused on a diverse set of renters in urban and suburban settings across multiple price points, each with a distinct set of priorities. We use our understanding of these priorities to tailor service offerings, amenities and value-add project scopes for each renter type. Turning to Slide 36. For our residents, regardless of their price point, we offer 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. From value luxury and our Class A minus assets to light new interiors in our Class B value-add and budget-friendly class B assets, we offer a diverse set of options for our residents. I'll turn it back over to Paul Now, so he can walk you through our Washington portfolio case studies.

Thanks, Grant. I'll quickly walk through those starting on Slide 37. Each of the strategies Grant just walked through have been effectively proven out in our Washington, D.C. portfolio. Yale West is a great example of our Class A minus strategy, appealing to professionals in downtown DC at rents just above the median rent for the submarket and at a discount to new product. We tailored a renovation program there to change out the carpet to wood flooring, driving additional rent growth at the property. Turning to Slide 38. Wellington is a prime example of our Class B value-add strategy, given its market reposition and rent gap to new product of nearly 30%. After acquiring this property in 2015, we executed both unit and common area renovations, including upgrading amenities across the asset. This acquisition also yielded a covered land play development site for Trove, our most recent development at a land basis discount to market of approximately 30%. And finally, on Slide 39, and Assembly Leesburg fits our Class B strategy, with asset rent at 92% of Washington Metro median and a 24% gap versus new product in its submarket. This asset has performed very well with strong demand and exceptional rent growth driven by its location in the fastest-growing county in Virginia. As we have said, value-add programs are a critical part of our execution track record. Slide 40 briefly summarizes and shows examples of how we have approached these renovations. Value-add programs have been very important to both our capital allocation and performance in the Washington, D.C. metro region, and that will continue in the future as we expand the new markets. We currently have over 2,800 units in our pipeline and are remobilizing our programs in the Washington, D.C. metro region after pause and during the pandemic, with a 10% return on cost target at a minimum. Going forward, we will continue to execute on our existing Washington, D.C. Metro pipeline, expand our value-add Class B program to our southeast markets and set the stage for future renovations, through our Class A minus strategy. Our value-add programs have also included asset repositioning, as illustrated on Slide 41. Although we paused our value-add program during the pandemic, we continue to move some priorities forward, such as the asset repositioning of Assembly Alexandria, which we acquired in 2019 as part of the 2,100 unit assembly portfolio acquisition. The central clubhouse was modernized and many underutilized spaces were reprogrammed to meet residents' needs. An unutilized racquetball court and movie room has become a state-of-the-art gem facility. The leasing center was upgraded. Work from home amenities, such as the conference room were built out and full unit renovations have begun and will continue throughout 2021 into 2022. The last thing I will cover before turning it over to Steve to wrap us up is Slide 42. We are prepared to move now on the opportunities for value creation we have just presented. On the operations front, we are first leveraging our proven relationship with a third-party property manager to immediately ramp up operations of acquired properties. Second, we are expanding our multifamily team with leadership located in our southeastern expansion markets. Third, we are building our multifamily operating platform of the future via a road map that we developed over the past year. And last, we are scoping and tailoring our value-add programming so that we can hit the ground running as we bring new assets in our expansion markets into the fold. Steve, why don't you close out the presentation now.

Thanks, Paul. I'd like to talk about the ongoing importance of ESG in our plans. I'm on Slide 43. While our primary focus today is on these transformative plans and transactions, we always have an ESG focus as well. And would be remiss not to comment on how that is important as we plan and execute all of this. We've certainly elevated and lived our ESG commitment to date. And see this transformation as an opportunity to reaffirm and follow our ESG priorities as we create value through this transformation. We will continue to integrate climate risk, including during our acquisition process for new assets. As we are evaluating physical operational risks and we'll maintain transparency through our commitment to TCFD. Our green bond has allowed us to match capital committed to supporting ESG priorities with our own efforts. Trove just received LEED Silver Certification, and we are working with BREEAM to have our $460 million assembly portfolio certified. As many of you know, BREEAM recently released a residential specific version of the BREEAM end-use certification standard that we think aligns well with our sustainability priorities. And BREEAM requires a third-party assessor to conduct on-site verification which we believe adds to the rigor of the validity of the certification. We plan to continue to be a leader in multifamily ESG as we expand and continue to follow through on our commitments to do so. Importantly, our very strategy to serve the underserved mid-range income renter and provide quality life, residential experiences that they can afford is socially responsible. And aligns their needs with strong financial returns for our investors. To wrap up our presentation, as we move to this next phase of the multifamily REIT, we believe these transformative transactions will allow us to create the greatest long-term value for our shareholders despite absorbing initial FFO dilution. Today, we have shared what we believe will be the culmination of several years of transformation into a multifamily REIT. We believe that our concentration in the multifamily asset class following this reset not only will provide substantial growth in our Washington, D.C. Metro markets, but also further growth outside our region in markets where we believe we can provide significant additional value to our shareholders. Our execution track record and research convinces that expanding into selected southeastern markets is a natural extension of our value creation strategies. We also believe that operating at even lower targeted leverage levels will allow us to have the strength to access capital and grow more rapidly than we could as a diversified asset class REIT. We believe we will grow our NAV more following this transformation. We commenced this transformation 8 years ago when this company was in 4 asset classes, primarily office. We view these transactions today as the final step of that journey of simplification and focus. In many ways, this is the end of the beginning. We are very excited about the next phase of WashREIT as a pure-play southeastern focused multifamily REIT with a focus on middle-income renters. We are very excited about our portfolio. Our strategy and our team and are eager to continue to create value for our shareholders. We thank you for your time and interest today, and we'll be providing further updates as we progress these transactions and complete asset sales, and acquisitions to geographically diversify and further strengthen our company. And with that, operator, we will now open it up for questions.

[Operator Instructions] Our first question comes from the line of Anthony Paolone with JPMorgan.

Okay. My first question is, as you thought about making this large transformational move, how did you think about doing this versus maybe going all the way with potential strategic sale of the whole business?

Tony, we -- I mean, we have looked at several opportunities over the last -- over the last few years, just talking to buyers, and candidly, there were challenges probably more around the DC office component. But in terms of our process, we talked to numerous buyers. We felt like this was the right time for the execution. We think that the breakup strategy is probably affords us a better opportunity for execution. And we think that we have good execution on both the office and the retail portfolio, leaving us with the asset class, we think is most favorable from a growth perspective. And that we want to continue to solely focus on and allocate capital to.

Okay. And then the $450 million to be deployed, is there a portfolio transaction that's being contemplated? Or is this a series of one-offs? Or how do you get that number? And what are you seeing out there more specifically?

Well, that number, obviously, is a -- it's just the remaining amount after we pay off the debt and take it down. In terms of the transactions that we'll be evaluating, Tony, we're, I believe, with our balance sheet position, the way it is. We're set up to both execute on an individual basis and portfolios. We think there's a pretty deep pipeline in the market today and throughout the balance of 2021 going into '22. And I think, Tony, we're going to have the opportunity to evaluate both types of executions.

Okay. And then just last question. Any thoughts on what happens to just corporate overhead as you go to 1 property type, but also it sounds like you'll, over time, have to build out a platform there.

Tony, this is Steve. Yes, while we're in transition, there'll be a minimum amount of G&A that we have to have as a public company, and we'll be transitioning out of commercial and into multifamily. We view that our G&A is going to be really scalable. And we will no longer be in a position of having to keep recycling assets and step backwards to go forward. So we're looking at an opportunity really to scale up the G&A, we have and scale the company without having to increase G&A by a much. But there will be a transition as we exiting 1 asset class and reallocating to another.

Our next question comes from the line of Daniel Ismail with Green Street Advisors.

Great. I'm just curious on the strategy of selling the office assets. Holding on to Watergate 600, makes sense from a -- to maximize value in the building. But how did you think about offloading all the assets collectively to or the remaining assets collectively to BAM versus trying to lease those up and maximize value there as well?

Well, I think, Danny, as we went through the process. And as I said, we've been -- as you know, we've been looking at repositioning the portfolio for several years now. And we have done a number of one-offs. We talk to numerous buyers. And on the individual sales basis, I think what we did want to look for in terms of, number one, certainty of execution, our buyers an all-cash buyer. But more importantly, when we broke it up collectively. And I think you know the state of of DCB right now, we did not want to be left with potentially left with the more challenging assets. And so we thought a portfolio execution offer to us and our shareholders is the best certainty of execution on moving out of the office asset class.