Elme Communities (ELME) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Stockholders of Washington Real Estate Investment Trust. Please note that today's meeting is being recorded. During the meeting, we will have a question-and-answer session. You may submit questions or comments at any time by clicking on the Q&A icon. It is now my pleasure to turn today's meeting over to Mr. Civera, Lead Independent Trustee of WashREIT. Mr. Civera, the floor is yours.

Good morning, and welcome to the Virtual 2022 Annual Meeting of Shareholders for Washington Real Estate Investment Trust. I am Ed Civera, the company's Lead Independent Trustee, and I act as the Chairman of this meeting. Drew Hammond will act as Secretary of this meeting. I now call to order the 2022 annual meeting. If we run into any technical issues during the meeting, we apologize in advance. The rules of the meeting have been posted on the meeting center site. If anyone is having technical issues related to participation in this meeting, please call 1 (888) 724-2416. We note that this contact information is also available in the rules of the meeting. As a reminder, this meeting is for shareholders and invitees only. Just a quick procedural point. Drew Hammond will act as Inspector of Elections. He has already taken the oath as Inspector of Elections, which will be filed with the minutes of the meeting. I'd like to take a few minutes to recognize the members of our Board of Trustees, all of whom are participating in today's virtual meeting. Ben Butcher is the CEO, President and Chairman of the Board of STAG Industrial, Inc., a publicly traded REIT specializing in industrial properties. Bill Byrnes is the retired Chairman of the Board of Directors of CapitalSource inc. and a former Managing Director and Head of financial institutions investment banking group with Alex, Brown & Sons. Ellen Goitia is a CPA and the former partner in charge of KPMG's Chesapeake business unit audit practice. Ellen is also the Chair of our Audit Committee. Paul McDermott is the Chairman of the Board and CEO of WashREIT. We will hear more from Paul later in the meeting, and attendees will have an opportunity to ask him questions. Tom Nolan is the former Chairman, CEO and President of Spirit Realty Company, Inc. Tom is also the Chair of our Compensation Committee. Andy Winns is the former President, Latin America, Africa region at Lockheed Martin Corporation and a retired Vice Admiral in the United States Navy. Andy is also the Chair of our Corporate Governance Nominating Committee. And as for myself, I am the retired Chairman of the Board of Catalyst Health Solutions and the former Chief Operating Officer and Co-Chief Executive Officer of United Payors & Providers. In addition, I am pleased to introduce Jennifer Banner, who was nominated to our Board following an extensive trustee search process. Jenny currently serves as Executive Director of the University of Tennessee Haslam College of Business Forum for Emerging Enterprises and Private Business. Jenny's collective expertise and experience covers the key areas needed at this stage in WashREIT's growth, including residential real estate, strategic planning, Board-level technology and public accounting experience. Finally, I'd like to acknowledge the participation of Drew Hammond, who is the Chief Accounting Officer, Vice President and Corporate Secretary of Wash REIT, as well as Jordan DeDona of Ernst & Young, LLP, the auditor that the Audit Committee has appointed to serve as the company's independent registered public accounting firm for the year ending December 31, 2022. Each of Drew and Jordan are available to answer any appropriate questions. Drew, please confirm that a quorum is present, in person or by proxy, before proceeding to introductory matters and commencement of voting.

At least a majority of all the votes entitled to be cast are represented at this virtual meeting either in person or by proxy, and therefore a quorum is present. Today's presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act that involve risks, uncertainties and other factors that are detailed from time to time in our 10-K and other filings with the SEC. We assume no obligation to update forward-looking statements. The following documents will be incorporated in the company's records as part of the minutes of this meeting: A copy of the notice of meeting; a copy of the proxy statement for this meeting; an affidavit showing that each shareholder of record on the record date, March 23, 2022, was mailed a notice of meeting and proxy statement for this meeting; and a certified list of the shareholders of the company as of the record date. I will now describe the proposals to be voted upon. Proposal 1 is the election of Jennifer Banner, Ben Butcher, Bill Byrnes, Ed Civera, Ellen Goitia, Paul McDermott, Tom Nolan and Andy Winns as members of the Board of Trustees for 1-year terms expiring at the 2023 Annual Meeting of Shareholders. Proposal 2 is to approve by advisory and nonbinding vote the compensation of our named executive officers. Proposal 3 is the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2022. Now before shareholders vote on these proposals, we are going to answer the questions submitted prior to or during today's meeting that relate to the proposals, each as described in the proxy statement. There will be a Q&A opportunity later with regard to company matters. Ed, I can confirm that there have not been any questions submitted with respect to the proposals. Now we call for the vote on Proposals 1, 2 and 3, each as described in the proxy statement. All persons acting as proxies or shareholders who have not already voted should submit their proxies or ballots at this time. Shareholders who have already voted by proxy need not cast ballots in the voting today unless they wish to change the vote on their proxy. The polls are now open. If you properly registered to attend this virtual meeting and have not already voted or wish to change any of your votes, please do so now in accordance with the instructions on your computer screen. We will hold the polls open during the CEO's remarks. Paul, you have the floor.

Thank you, Drew, and good morning to all. Thank you for being with us virtually. At this time last year, we were a diversified company facing increasing commercial headwinds. Today, we are a focused multifamily company with strong growth tailwinds. We executed the most significant capital recycling in our 60-plus-year history during 2021, and initiated our planned geographic expansion into the Southeast, where we continue to grow our footprint. Today, I'll provide a recap of our transformation and overview of the strategy that drove our geographic expansion into the Southeast and an update on our growth outlook. I encourage you to review our most recent investor presentation, which can be found on our website, www.washreit.com, under the Investors tab. This presentation provides a detailed overview of our portfolio, investment strategies and growth outlook. During 2021, we sold our office and retail portfolios and deployed the net proceeds into multifamily communities in high-growth submarkets in Atlanta. The multifamily sector offers significant demand drivers supporting continued growth, lower recurring capital expenditures, lower credit risk and stronger cash flows compared to the commercial assets we sold. As we scale our portfolio in the Southeast, we are prioritizing the strength of our investment-grade rated balance sheet. We further delevered our balance sheet and increased liquidity in 2021 to create optionality as we grow while at the same time improving our risk profile. We have acquired approximately 1,800 homes in high-growth submarkets in Atlanta thus far, which represents approximately 20% of our total apartment portfolio. By the end of this year, we expect nearly 1/4 of our multifamily units to be in the Southeast. Our Southeast market selection is built on the viewpoint that economies with diverse, innovative industries will benefit from outsized job creation, wage growth and in-migration in the years ahead. 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. Our research-forward approach has also been integral to the development of our successful portfolio strategies. Our strategies harness the strong middle income renter demand in Southeastern markets that simultaneously have market constraints from providing new product to serve them. Each portfolio strategy also has a distinct rent growth drivers as well as vintage and price point parameters. From value luxury in our Class A and A- communities, to like-new interiors in our Class B value-add and budget-friendly Class B communities, we offer a diverse set of options for our residents, and we align these strategies with submarket attributes to drive rent growth across our portfolio. The acquisitions that we have completed thus far fits squarely into our strategies and are expected to benefit from sustained demand in the years ahead. Through the first quarter, our Atlanta portfolio outperformed our initial underwriting assumptions, and we remain confident that our research has led us to invest in areas that are poised for strong, sustained growth. Now turning to our Washington metro portfolio which includes approximately 7,060 homes. We are entering the spring and summer leasing season with the strongest growth outlook in recent history. Occupancy and retention remained very strong and lease rate growth continues to trend upward. As leasing activity picks up into the summer, we expect to capture the balance of post-inflection rate increases while also capturing additional market rent growth during the year. Trove, our ground-up multifamily development, leased up during 2021 at a pace that was well above the regional average and stabilized near year-end. Trove consists of approximately 400 units constructed on-site at The Wellington, illustrating our successful execution of a covered land play in a submarket with limited new supply. We expect Trove to be a key growth driver over the next few years. We also anticipate renovation-led value creation to have an increasing impact on growth, given that our renovation programs have just recently fully ramped up following the program suspension during the pandemic. We have a pipeline of approximately 3,000 units. Historically, our renovation programs have generated mid-teen cash-on-cash returns. We are capturing very strong lease rate growth on our renovated units and expect to continue to add to our renovation pipeline as we expand into the Southeast, further driving growth in the years ahead. Our shift from serving office and retail tenants to focusing almost exclusively on our apartment residents improves our ability to deliver superior customer service. As a focused business-to-consumer company, we are working on several major initiatives that will have a significant impact on our ability to achieve our goal of elevating the standard of living for our value-oriented residents. Internally, we refer to this multiyear effort as Project Reimagine because we set out to push the boundaries of what we thought was possible and to challenge conventional thinking and legacy procedures. Thus far, we have: Defined our go-forward technology strategy, reshaped our human resource program, and identified the optimal staffing model for each phase of our growth, designed a brand that supports our transformation and resident-focused strategy and laid out the groundwork to internalize property-level resident operations. We are in the process of implementing our core technology platform and plan to launch our new brand and to begin to assume property-level operations later this year. Following the complete internalization of property-level operations and enhancements to our operating platform, we expect to realize significant benefits as we grow our portfolio and optimize our expense base, which will improve our value proposition to both our residents and our shareholders. We believe that investing in our people, residents and communities, while mitigating our impact on the environment, are key pillars to long-term shareholder value creation. While our company has been well known for years for its achievement within the environmental aspect of ESG, our impact goals for 2022 and beyond are expanding to be more inclusive of all aspects of ESG, including the socioeconomic impact of our communities, holistic health and wellness of our employees and residents, inclusivity and belonging within our workforce, and both the potential physical and transitional risks of climate change on our assets as the world looks to a carbon-free economy over the next few decades. As we move further into 2022, we are building momentum that will carry over into the years ahead. Our Atlanta acquisitions are positioned for strong rent growth, driven by outsized job and wage growth and in-migration. Our Washington metro apartment communities are benefiting from historically high occupancy and retention and the strongest lease rate growth momentum that we have seen in 20 years. We believe that our research-driven strategy will produce outsized growth over time, and that, over the long term, we can significantly enhance shareholder value by delivering superior customer service that elevates the standard for value living. We are excited for the year ahead and the growth that is to come, and we look forward to keeping you updated on our progress. And now I'd like to turn it back over to Drew, our Inspector of Elections, to provide a preliminary report of the voting results.

Thank you, Paul. We will now conclude the voting matters and announce the results. The polls are now closed. Based on the preliminary count, as to Proposal 1. Ms. Banner, Mr. Butcher, Mr. Byrnes, Mr. Civera, Ms. Goitia, Mr. McDermott, Mr. Nolan and Mr. Winns have each been duly elected to serve as a trustee until the 2023 Annual Meeting of Shareholders. As to Proposal 2. The advisory and nonbinding vote on the compensation of our named executive officers, has been approved. As to Proposal 3. The selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2022, has been ratified. We will now entertain questions with regard to company matters that have been submitted. I can confirm that there have not been any questions submitted.

Thank you, ladies and gentlemen. There being no further business to be addressed at this meeting, the meeting is hereby adjourned. I'd like to thank you all for attending.

This concludes the meeting. You may now disconnect, and have a pleasant day.