Washington Real Estate Investment Trust (NYSE:WRE) Q3 2020 Earnings Conference Call - Final Transcript

Oct 30, 2020 • 11:00 am ET

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Washington Real Estate Investment Trust (NYSE:WRE) Q3 2020 Earnings Conference Call - Final Transcript

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Presentation
Executive
Paul T. McDermott

financial position and cash flow needs. Fortunately, these deferral arrangements have not been material and represent a cumulative impact of less than $0.01 per share through 2021. While uncertainty remains regarding how protractive this eventual recovery will be, we are confident in our ability to absorb the near-term impact while preserving our long-term growth opportunities for three reasons.

First, our portfolio and local economy continued to show resilience. We attribute our strong collection performance, which Steve will discuss in detail later on this call to the fact that the composition of our office tenants and the employers of our multifamily residents are concentrated in industry sectors that have experienced the lowest job losses. The impact of local job losses for office using sectors in the Washington Metro region has been limited with no office using sector losing more than 4% of the total workforce year-over-year, according to BLS data.

45% of our multifamily residents and 56% of our office tenants are employed in professional and business services, government or information sector jobs. Furthermore, nearly half of our professional and business services tenants are government contractors, which is a key differentiator as they are sticky office using tenants linked to important programs, which results in significantly more stability in our region compared to other major metro areas and the US overall.

The second reason we are confident in our near-term outlook and long-term growth prospects is the continued stability demonstrated by our multifamily portfolio. Our value oriented multifamily portfolio has held up well during the pandemic and offers favorable demand and supply fundamentals over the long term. The Washington Metro region has a significant housing [Phonetic] shortage that has been accumulating over many years, as well as an affordability crisis is only getting worse as the cost of homeownership continues to drive above affordable levels for median income earners. Thus, the largest rental cohorts remain underserved by new supply.

Over 95% of the multifamily units that have been constructed over the past seven years are unaffordable for renters who earn $75,000 per year or less. A segment, which comprises 57% of the Washington Metro rental base. Over 75% of WashREIT's units are affordable to those renters with a sustainable rent to income ratio of 30% or lower. Also driving our long-term demand fundamentals is that 80% of our multifamily portfolio is located in Northern Virginia, where job growth is the strongest and job losses have been the lowest.

Northern Virginia has mission-critical cyber and technology jobs as government programs continue to grow and an inbound market of technology jobs compared to more expensive markets which are losing technology jobs during the pandemic. CBRE released its annual Tech-30 market report earlier this month, which ranks the nation's top tech markets in terms of resilience and potential for growth. The Washington Metro ranks second in the nation based on the presence of the best performing large cap tech companies and the best combination of modern office rents with a growing high-tech labor pool.