Welcome to the WashREIT Second Quarter Earnings Conference Call. As a reminder, today’s call is being recorded. At this time, I would like to turn the call over to Amy Hopkins, Vice President of Investor Relations. Amy, please go ahead.

Good morning, everyone, and thank you for joining us on our second quarter earnings call. On the call with me today are Paul McDermott, President and Chief Executive Officer; Steve Riffee, Executive Vice President and Chief Financial Officer; Grant Montgomery, Vice President and Head of Research; Drew Hammond, Vice President, Chief Accounting Officer and Treasurer; and Steven Freishtat, Vice President, Finance. Before we begin, I would like to remind everyone that this conference call contains forward-looking statements that involve known and unknown risks and uncertainties, which may cause actual results to differ materially, and we undertake no duty to update them as actual events unfold. We refer to certain of these risks in our SEC filings. Reconciliations of the GAAP and non-GAAP financial measures discussed on this call are available in our most recent earnings press release and financial supplement, which was distributed yesterday and can be found on the Investor Relations page of our website. And with that, I’d like to turn the call over to our President and Chief Executive Officer, Paul McDermott.

Thank you, Amy. Good morning, everyone, and thank you for joining our second quarter 2022 earnings call. These are obviously quite interesting times. The capital markets have been disrupted as a result of the Fed’s response to rising inflation, as well as other macro events, yet apartment market fundamentals remain historically strong. Interest rate movement has caused debt markets to pull back. And as a result, transactional markets have slowed down substantially. However, as an all-cash buyer, we continue to receive calls about acquisition opportunities as certainty of execution is now paramount. We have completed the deployment of the commercial asset sale proceeds and are working on additional opportunities to continue our growth and geographic diversification. Steve will cover where our portfolio is 1 year after launching major transformation steps and the anniversary of turning the corner from the worst of pandemic leasing conditions, as well as our second quarter results and growth outlook. But first, I would like to talk about the environment we now face in the near-term as we continue our geographic expansion. As interest rates have risen, deal competition has subsided as leverage buyers face negative terms and have moved to the sideline. Our underwriting has been conservative, and we plan for the potential of a lower gross economy. We underwrote the expectation for 2023 rent increases to trend down to high single-digits versus the unprecedented double-digit trade-outs we are continuing to experience thus far and to approximate historical levels after 2023. Depending upon the market, submarket and vintage of assets, we believe cap rates have expanded 30 to 50 basis points, and we’ll continue to monitor price movement as the markets are still volatile. That said, we have capital to deploy and are being judicious with our underwriting and continue to insist on full due diligence on each acquisition we pursue. Recently, we passed on a transaction as our disciplined due diligence discovered additional capital requirements. While market conditions have changed, we were not able to be compensated adequately by the seller. Although this decision delays our assumed acquisition timing and lowers near-term guidance, we still have a good pipeline of opportunities and are confident we will complete acquisitions, meeting our requirements this year. In May, we closed on the acquisitions of Alder Park and Marietta Crossing for $178 million, bringing the total size of our Atlanta portfolio to approximately 1,800 units or just over 20% of our total homes. Our acquired portfolio returns continue to exceed the expectations that we underwrote as we assume that the current very strong rent growth levels would moderate in the coming years. Maintaining this discipline along with focusing on growth, starting with firm initial yield targets has proven to be prudent as the environment shifts. Thus far, we’ve executed on our geographic expansion by targeting specific assets, but we are also evaluating private portfolios and other opportunities, which would allow us to scale our portfolio more rapidly in line with our strategic direction. While there is currently less product in the market as sellers are assessing conditions, we are working on opportunities to continue to grow, including exploring ways to structure transactions based on net asset values. These kinds of opportunities take time but may provide excellent mutual value creation opportunities ahead. With that market backdrop, I’d like to comment on the operating environment in our markets. We continue to benefit from good fundamentals, driven by strong demand for value-oriented homes in the DC Metro and Atlanta. Nearly 80% of our same-store portfolio is located in Northern Virginia, where effective rents accelerated into the summer months, rising nearly 3.5% on average during the second quarter and 13% year-over-year according to RealPage. New lease trade-outs for the Washington region, which continue to have positive momentum, increased 15.4% for the second quarter, up 430 basis points from last quarter. In Atlanta, year-over-year effective rents grew by 16.8% in the second quarter as reported by RealPage and remain at near record levels. Our communities are benefiting from strong demand and high retention in addition to significant growth in market rents. Even as the outsized market rent growth that we are seeing today moderates, we foresee sustained demand for our value-oriented price points. As interest rates have increased, home ownership has become even less affordable for middle-income renters, which comprise the largest share of rental households in our current and target markets. Housing shortages continue to worsen overall, and the lack of affordable housing options is even higher. According to a recent study, the Washington metro has a shortage of 151,000 housing units and Atlanta has a shortage of 81,000 housing units. Within our Washington metro markets, the premium to own a starter home compared to our current average asking rent is over $1,700 per month. In Atlanta, it’s approximately $1,000 and widening as Atlanta home values have risen nearly 60% compared to 3 years ago. In fact, the differential cost between renting versus owning nationally is the highest it’s been this century. We’re seeing the impact of rising cost of homeownership in our move-out statistics. As the number of move-outs related to home purchases declined 20% year-over-year during the second quarter and over 25% on a year-to-date basis for our same-store portfolio. Move-outs driven by home purchases were even lower in our Atlanta communities, representing less than 9% of our second quarter move-outs. Furthermore, the majority of new supply coming into our markets is concentrated outside of the areas where our communities are located. Only 11% of the new supply in Atlanta and less than 1/3 of the new supply in the Washington metro is delivering into WashREIT submarkets in 2022 and 2023. Moreover, our price points do not compete with new deliveries. Our average effective monthly rent is $800 lower than newly delivered Class A communities in the Washington metro and $480 lower for our Atlanta communities. Given the recent rise in construction and debt costs, we expect supply levels to decline past 2023. So far this year, we’ve achieved higher rental rates than we had expected and market rent growth has remained very strong into the summer. Over 30% of our leases expire between July and September, and we expect same-store NOI growth to be higher in the second half of the year as the combination of rate increases earned into our rent roll and final pandemic leases rolling off drives higher overall growth in rental income. Additionally, income growth remains robust and can support continued rent growth. Median incomes for our Washington metro communities have risen 12% over the past year and 14% for our Atlanta communities from the second half of 2021 to the first half of 2022, underscoring the strengthening credit profile of our resident base as market rents grow. Given the strong demand levels that we are seeing today, combined with rent increases we have experienced since last July, we are well positioned for strong same-store NOI growth for the rest of 2022 and 2023. The acquisitions we have made throughout 2022 will provide even greater NOI growth. We expect strong NOI, Core FFO and Core AFFO growth going forward, beginning this third quarter of 2022 and further strengthening in 2023. In fact, with this growth building, I want to be clear that the reason we are lowering the balance of 2022 guidance is because we delayed the timing of the assumed acquisition and are capitalizing less interest because now is not the time to activate development at the Riverside. As Steve will cover, our growth is now getting stronger. As we continue our transformation, we are rolling out new and improved operational infrastructure that will position us to deliver better service to our residents and operating leverage for our shareholders as we grow. We are making great progress on this part of our transformation, and we continue to uncover new opportunities to improve property level operations. We’re executing a major overhaul of our operating model, technology platform, human resource infrastructure and brand strategy ahead of internalizing property level residential operations later this year. This transformation includes 3 phases in total, and we are now moving into Phase III. Since our last update, we have designed our near-term and future state human capital models and have filled several key positions and are continuing to recruit for corporate positions that will support our internalized model. We are redefining our culture to further support and meet resident needs while incorporating diversity, equity and inclusion and belonging into all people-related aspects of this project. As we look forward to welcoming the on-site property teams to the company, we are building out our training program and developing compensation and incentive packages to align all team members with our resident-centric mission and long-term vision and ultimately support our business strategy and growth. We are implementing our core technology platforms and our testing and planning for cutover of third-party data into our new core operating system. We are also creating a resident-focused brand strategy with plans to launch our new name, brand and website later this year. A significant component of our marketing will be focusing on customer experience and technology enablement. Along with our infrastructure overhaul, we aim to elevate the value living experience for mid-market renters by rolling out a pilot program that brings ease of living and operating cost avoidance provided by smart home and smart building automation. It’s a well-known fact that Class B properties have lagged Class A when it comes to technology investments. But we believe that by tailoring our technology investments to the needs and priorities of our residents, we can improve our resident day-to-day experience at investment levels that make sense for mid-market price points with technologies that will reduce our operating expenses and advance our environmental goals. Our initial pilot program includes smart door locks, thermostats, water leak sensors and community-wide Wi-Fi designed to ease the resident move-in and living experience. We plan to roll out this pilot initiative as part of our broader plan to improve and streamline the technology used at communities as we start to bring property level operations in-house starting later this year. We expect the process of onboarding property level operations in each of our communities onto our internal systems to be completed by mid-2023. And for most of the costs related to the broader infrastructure transformation, to be absorbed this year in line with our updated guidance range. By year-end, we expect to have G&A expense base in place going forward, which will not be substantially different from the ongoing level that it is today to support a doubling of our unit count when conditions are appropriate to do so. The future should provide additional opportunities and benefits to scale the business and optimize our expense base. Meanwhile, we now have significant growth earned into our portfolio as we creatively wait for the best opportunities to further scale. Steve will expand on that further. However, before we cover that, I’d like to provide an update on a couple of our recent ESG initiatives. We’ve nearly completed the installation of solar panels on 2 of our apartment communities in D.C. When activated, these systems will generate enough clean energy to reduce greenhouse gas emissions equivalent to the impact of 7,800 trees each year. Additionally, this past month, we kicked off the installation of electric vehicle charging stations across all our Maryland communities. We are coordinating with the state of Maryland, as well as the local electric utility to take advantage of rebates that will potentially cover 100% of the installation cost. We are actively coordinating across our Virginia and D.C. properties to identify and take advantage of other similar rate opportunities to lower the entry cost of installing EV charging for our residents given the increased demand in the past year. Now, I’d like to turn the call over to Steve to discuss our growth outlook in more detail, capital allocation and planning, and our second quarter results and outlook.

Thank you, Paul, and good morning, everyone. I’d like to cover where we are at this point, having launched our most significant steps in our transformation 1 year ago and talk about our operating results, trends and outlook before covering our second quarter results and guidance. We are now in the third quarter of 2022, which represents the first quarter of performance that includes the full allocation of the net proceeds from exiting our commercial businesses. It will also be the first quarter where substantially all of our multifamily leases have had at least one post-pandemic inflection lease rate increase. Our transformation was designed to provide tailwinds of growth as opposed to the headwinds facing the commercial office and retail sectors. We had historically strong rent trade-outs since we reached the pandemic rental inflection point beginning on average last July. By the end of this quarter, nearly all of our leases will have captured strong year-over-year rent trade-outs and substantially all pandemic lease consumptions will now burn off. The growth that we are capturing as we sign new leases remained in the double-digits for leases signed to date with July and August commencement dates, reaching yet a new same-store peak for effective new lease rate trade-outs of 13.9% for July. Our total loss to lease stood at 11% at quarter end and combined, this gives us true visibility into the growth that is ahead. Starting with the third quarter of 2022, we expect average double-digit same-store multifamily NOI growth for the next 5 quarters. All things considered, we have excellent visibility into very strong NOI and Core FFO growth for the second half of 2022 and all of 2023. On top of our historically strong same-store growth, we have strategically and geographically expanded and invested in Southeast communities, where the year-over-year growth for the months owned in both 2022 and 2023 will be much higher than our same-store growth. While we are forecasting inflationary impacts on our cost base, most notably payroll and utility costs, we have a rent roll with fully embedded year-over-year rental growth that is further enhanced by the burn-off of the pandemic-induced lease concessions. As we capture our loss-to-lease, it will build on top of the growth that is already embedded in our rent roll, driving higher NOI growth, which will carry into 2023. Given that most of this growth is either earned in or embedded in our loss-to-lease, it is now visible as we begin the third quarter, and again, we expect it to drive strong Core FFO and AFFO growth through 2023 as well. Another main objective as we launched this final step of our transformation into a multifamily company was to geographically diversify our portfolio. As Paul just gave an update on our recent acquisitions, we’ve made great progress thus far as annualized NOI for our Atlanta communities is expected to be approximately 20% of our multifamily NOI by the fourth quarter of 2022. We continue to evaluate Southeast acquisitions on an ongoing basis and are exploring additional opportunities to further diversify our geographic concentration. We will monitor capital markets and pursue opportunities to scale and diversify by recycling some lower-growth assets in our D.C. metro portfolio into higher-growth Southeastern communities that align with our investment strategies. We will be disciplined about accessing capital markets, and we certainly see the disruptions to them. We are creatively exploring our opportunities to scale, grow profitably, and further expand geographically, including through private portfolios via possible NAV to NAV structured acquisitions that could make sense for both parties. These pursuits take time to evaluate and execute and they provide excellent opportunities to further accomplish our 3 objectives of profitable growth, geographic expansion, and profitably scaling the company when it makes sense to do so. Nevertheless, our primary objective of delivering value and profitable growth is now visible, and we are experiencing it as we begin the third quarter. Now, turning to our operating highlights. Same-store occupancy averaged 95.8% during the quarter, and retention was 63% during the quarter, representing a 6% year-over-year increase. For same-store move-ins that took place during the second quarter, effective new lease rate growth was 11.7% and effective renewal lease rate growth was 10.9%, which went to 11.2%. We are continuing to achieve mid-teen effective new lease rate growth for our same-store communities, averaging approximately 13.9% for July movement. For Atlanta move-ins that took place during the second quarter, effective new lease rate growth was 17.7% and effective renewal lease rate growth was 16.3%, which blends to 16.9%. For July move-in, new lease rates increased 18.2% and renewal lease rates increased 16.3%, resulting in blended lease rate growth of 17% in our Atlanta communities. We expect blended lease rate growth to moderate after the seasonal summer months, but remain above historical levels through 2023. Beyond what’s already reflected in our loss-to-lease, average effective market rent growth is expected to be approximately 11% for the Atlanta region and 6% for the Washington metro area for 2023, according to RealPage data. Our loss-to-lease stands at 15% of our non-same-store portfolio and just over 10% for our same-store portfolio, which lends to a total loss-to-lease of 11%. We expect to capture our loss-to-lease over the next 12 to 16 months, allowing in-place rents to grow as the portfolio turns. During the second quarter, we renovated 75 units for a return on investment of a little over 12%, excluding the rent growth that we achieved on comparable unrenovated units. And if you included total rental increases in your ROI, it will look more like 25%. As we continue to acquire communities with renovation potential, we expect renovation-led value creation to have an increasing impact on our growth trajectory, alongside our geographic expansion. In particular, we expect renovations to extend the tail of our rental rate and NOI growth going forward. We expect to return to our historical annual renovation run rate of approximately 600 units per year as we look forward and then grow as we continue to scale. Our forecast contemplates inflation pressure on wages, utilities, insurance and repairs and maintenance costs into 2023. Even considering those factors, at this point, we expect strong NOI growth in 2023. Now turning to our financial performance. Net loss for the second quarter of 2022 was approximately $8.9 million or $0.10 per diluted share compared to a net loss of $7 million or $0.08 per diluted share in the prior year. Core FFO was $0.21 per diluted share, reflecting a year-over-year decline of $0.14 due to the impact of our commercial asset sales as well as the timing of reinvestment. Multifamily same-store NOI grew 5.1% over the prior year driven by higher base rent and occupancy compared to the prior year period, offset in part by higher bad debt. The increase in bad debt was largely due to some increases in delinquencies as a result of an extended eviction timeline, while the Virginia's government assistance program was winding down prior to ending on July 1. We expect repossessions to increase during the third quarter and for bad debt to show a visible decline in the fourth quarter. Average effective monthly rent per home for the quarter increased 7% compared to the prior year on a same-store basis, which also represents a substantial improvement compared to the 3% year-over-year growth achieved last quarter. As we mentioned last quarter, we expect the growth in average monthly rent to remain strong over the course of the year as more and more rental growth has been captured in our rent rolls to date. We still have 1/3 of our leases expiring during the third quarter, replacing leases signed when rents were just beginning to recover starting July of last year. Other NOI, which represents Watergate 600, grew 9.6% in the second quarter compared to the prior year, driven by higher rental income for new leasing and rent increases as well as increased parking usage. Watergate 600 is an architectural landmark and an amenity-rich neighborhood with high-quality institutional tenant base. Now turning to our outlook for the balance of the year. We are slightly lowering and tightening our guidance range by $0.02 at the midpoint due to a delay in timing of further acquisitions and increased interest costs, including lower capitalized interest and higher interest rates. Neither of these adjustments have changed our outlook for 2023. We are raising and tightening our same-store multifamily NOI growth guidance and now expect it to range between 8.5% and 9.5%. At the midpoint, this represents 11.5% NOI growth for the last 2 quarters of 2022 and a 25 basis point increase over our prior guidance. NOI growth for same-store and Trove combined also increased and is now expected to be between 12.25% and 13.25%. Trove was fully invested in both years and represents true year-over-year growth on the same capital investment. Non-same-store multifamily NOI, which consists of Trove, The Oxford, Assembly Eagles Landing, Carlyle of Sandy Springs, Alder Park, Marietta Crossing, and Riverside Development site is expected to be between $22 million and $23 million, of which Trove represents approximately $7 million. This was slightly lower than previous guidance as operating expenses and bad debt are expected to be higher and capitalized costs related to development are lower. We have raised the midpoint of our guidance for other same-store NOI, which consists solely of Watergate 600 to a range of 13.25% to $13.75 million. Our FFO guidance range incorporates approximately $125 million of additional acquisitions, now expected in the fourth quarter of this year later than previously guided. This delay in timing, net of carry costs, lowered our 2022 guidance by approximately $0.01 per share. The other factor that impacted our prior guidance is that we suspended development activities at Riverside for now and are no longer capitalizing interest for taxes. As I said, our guidance includes $125 million of additional acquisitions later this year. And when completed, we expect our net debt to adjusted EBITDA to be in the mid-5x range on an annualized basis. G&A net of core adjustments for severance and structuring costs is expected to range between $25.5 million and $26.5 million, excluding the impact of transformation investments for our future platform and our full integration. Interest expense is now expected to range between $25.5 million and $26.25 million, which reflects the net impact of higher interest rates, later acquisitions and lower capitalized interest during the second half of the year. We expect our Core AFFO payout ratio for the year to be in the mid-70s and establish an AFFO growth profile that should provide us with additional flexibility to grow the dividend. And finally, we continue to expect transformation costs, which represent costs related to our strategic transformation, including core systems implementation, branding and human capital initiatives, operating platform design and retention and termination benefits to range from $10.5 million to $11.5 million. By the end of 2022, we expect to have the infrastructure in place to manage all of our communities in-house, and we expect we will incur our residual transformation costs in 2023. Operating fundamentals are historically strong. And while we expect the current pace of market rent growth to moderate, we see a lot of momentum as the year progresses, which will carry over into 2023. Much of this near-term growth is embedded in our portfolio today and is being extended further as our in-place leases catch up to increasing market rates. Looking forward, we continue to expect outsized market rent growth in our markets over the near-term, which will drive the top end of our loss-to-lease higher as our in-place lease pool turns. Trove will provide meaningful growth, experiencing a full year of stabilized occupancy coupled with initial lease-up concessions burning off. And finally, our value-add renovation and affordability gap strategy and our strong renovation pipeline provide opportunities that we’ve already captured to further extend profitable growth beyond market rent growth levels for the next 3 to 4 years. And with that, I’ll now turn the call back to Paul.

Thank you, Steve. Before I conclude, I want to take a moment to welcome our new Board member, Jenny Banner, who will serve on our Audit and Governance Committees. Jenny is a highly accomplished senior leader with 14 years of CEO experience and 20 years of public company board experience. Among her many accomplishments, she has been a public speaker and consultant globally on the Board’s role in digital transformation, which is an area of focus for us as we continue to improve and streamline our corporate and property level technology infrastructure. Her technology expertise and leadership will be a great asset for WashREIT. I’d also like to thank the entire Board for their ongoing support and commitment. To conclude, as we enter the third quarter, we have a line of sight on the best growth outlook we’ve had in recent history. It’s been a year since we embarked on the final phase of our multifamily transformation. With same-store NOI growth expected through the third quarter of 2023 expected to average in the double-digits and even higher growth from our non-same-store communities, our outlook is certainly much better than it was a year ago. Our internal transformation continues, and we are actively preparing to begin bringing our community operations in-house. Looking forward, we have several exciting announcements on the horizon, including our new resident-focused brand rollout later this year. While our plans to scale our company might take time as the capital markets disruption subsides, we are confident in our ability to execute on opportunities and grow profitably and to further expand geographically and look forward to delivering very strong growth from our existing communities through 2023 and beyond. And with that, I will now open the call up to answer questions.

And the first question today is coming from Blaine Heck from Wells Fargo.

So clearly, acquisition expectations are delayed a little bit contributing to your guidance reduction. It sounds like that delay is related to the specific situation you have with that seller. But more generally, Paul, can you give us a sense of whether you expect opportunistic or somewhat distressed situations to emerge, given the disruption in the capital market? What is the overall decline that we’re seeing in transaction volume just more attributable to just price discovery on all deals given the meaningful movement we’ve seen in the cost of capital, but maybe fundamentals are holding up well enough that there isn’t going to be much distressed?

Let's begin with the capital markets. If we examine debt first, the agencies are facing constraints on their coverage ratios and underwriting, particularly for deals over 55% loan-to-value (LTV). Debt funds that we previously discussed, which were typically very aggressive, have seen their costs rise, leading to higher stabilized debt yield requirements. This has impacted their ability to pursue higher LTV deals, where they were once competitive. However, deals are still occurring since we are recognized as an all-cash buyer. The transactions that are happening in this market tend to involve all-cash offers or lower leverage, around 50% LTV or 55% or below. A significant shift in the last quarter is the premium placed on certainty of execution. We've secured and closed five deals recently, and we are acknowledged in our target markets for providing this certainty. We are sticking firmly to our underwriting principles. I believe that our observations indicate a broadening of cap rates by 30 to 50 basis points, with office products likely seeing an even greater change, along with retail. Due to the increase in capital costs, we're also witnessing a repricing of assets. Larger portfolio deals, which I would have previously indicated had a premium, are now seeing discounts. An important trend we're observing is that loan packages or loan sales are becoming equally significant in the investment sales landscape as single deals. There's a noticeable bifurcation in the market, particularly in Washington, D.C., where trophy assets are being financed while commodity assets are struggling. The type of discounts applied really hinges on asset class, submarket, and property age. Over the last 60 to 75 days, we've received more inquiries about deals than in the last 18 months. While many brokers and some owners seem to be taking a brief pause over the next month, we anticipate a surge in available products post-Labor Day.

That’s very helpful color. And as you mentioned, you guys are halting development at Riverside at this point, and this is related to the first question, but on the other side of the deal, is there anything to read into that decision with respect to a potential monetization of that asset or even part of that asset? Or would you say it was driven more by kind of the other factors that you mentioned in prepared remarks?

I think it’s driven just because we are being prudent in our underwriting. And when we look at our requirements, our initial going in yields on that, we want to see more data points from that market. That market is certainly moving in a positive direction. But when we combine that with the increase in construction costs from when we first started the predevelopment work on that, I think construction costs, Blaine, have gone up probably 20% over the last 2-plus years. That’s the only reason. We’re still very committed to that asset. We like what we’re seeing in our current same-store pool from the Riverside asset itself. And we think that project will be a long-term winner for us. But just right now, we’re really focused on current income as we make this transition.

Last one for me, Steve. I wanted to ask about same-store results in the quarter and particularly on the change in rental and other revenue at 5.3%. In the context of average rent per home up 7% year-over-year, along with a 0.7% increase in occupancy. I guess I would have expected the total revenue number to be up more. Was there anything in other property or elsewhere that offset that rent and occupancy growth?

Firstly, we've been actively developing our strategy, and I expect to see this growth continue in the third and fourth quarters. We reached a turning point about a year ago in our post-pandemic recovery, although it may have been slightly slower compared to other markets that started in July. We’ve been managing some concessions that we will continue to amortize until June. In this past quarter, there was some timing noise related to several expense items, which also impacted revenue. We believe the second quarter was our peak for bad debt, affecting revenue slightly. We anticipate a shift with the repossession of units beginning in the third quarter, which may have influenced the second quarter’s results. On the expense side, we faced a year-over-year comparison issue due to a real estate tax reassessment credit from the previous year, making expenses appear to rise more than they actually did. We also encountered timing differences with a few costs associated with new assets we acquired in Atlanta, which were incurred a month or two earlier than expected during the onboarding period. However, it's important to highlight the strong performance we’ve seen in our prepared remarks, with impressive trade-outs and blended renewal lease metrics. Our loss-to-lease was at 11% by the end of the quarter, and we have good momentum going into the third quarter. Interestingly, we expected peak new trade-outs to occur in May or June, but we reached another peak in July, indicating ongoing strength. August rents have also shown stronger performance than anticipated. Overall, I believe our revenue is building, and as highlighted in our prepared remarks, we have reached full investment in our transformation as of July 1. This aligns with the lease changes post-pandemic, setting us up for growth that starts from July 1. We have been preparing ourselves for this for the past year.

And the next question is coming from Mike Lewis from Truist Securities.

I wanted to follow up and ask more specifically about cap rates. Regarding the cap rate on your second quarter acquisitions compared to what you expect for those in the fourth quarter, you mentioned that cap rates are moving 30 to 50 basis points. It's unfortunate that you experienced a delay on an acquisition. Are you seeing any benefits from this situation? In other words, it may be a drag this year, but do you think that perhaps cap rates are a bit higher than you anticipated on the acquisition side, which could provide a tailwind next year? Or am I overstating the movement in acquisition cap rates?

Well, let me make a couple of points on your question, Michael. It’s never unfortunate to walk away from a deal that doesn’t meet your underwriting criteria because somehow some way we think that, that’s going to come back and rear its head. And this particular deal that we had tied up would have met and exceeded our acquisition goals this year, but I’m proud of my team for having the discipline when we didn’t get the capital improvements adjustments that we needed. Clearly, the market was moving while we tied it up. And we also think that there could be some credit challenges potentially moving forward. So I think this is the time you need to maintain your discipline. But to your point, I think we will probably see, as I said on Blaine’s question, number one, I think we’re going to see a lot more deals in the second half. Just the bid-ask, I would expect that a lot of brokers that are taking on listings right now and even some of the owners, I think they’re becoming more realistic on the bid-ask. I think some of the sellers, particularly in the Southeastern markets, were a little bit in denial that the market had moved, and we were watching deals get retraded all around us, Michael. These are deals that were probably in the mid to upper 3 deals that we’re now going at 4.25% to 4.35% and seeing even in some of the submarkets, those deals getting priced to upper 4s. I think our investors in our portfolio will be a beneficiary longer term and coming in at a better basis.

I wanted to ask about the portfolio now that Atlanta makes up only about 8% of total NOI in the second quarter. How aggressively do you plan to increase its percentage in the portfolio from this point forward? You mentioned more acquisitions in the second half of the year. Does this involve a transition from the D.C. area by selling assets and acquiring in the Sunbelt, or is it more of a gradual adjustment in the portfolio over time? Where do you envision the mix settling in the future?

Michael, it’s Steve. I'll begin, and then Paul can finish up. Some of the acquisitions came in late in the quarter, and our models indicate a 20% increase in Atlanta NOI for the fourth quarter. Additionally, they are experiencing strong growth. We previously discussed our targets when launching the transformation, aiming for around a 4 cap rate or better. Currently, for the assets we've acquired, our 12-month yield forecast from June 30 to now is 4.6%. We're seeing growth and good returns on our acquisitions so far. We have three main objectives, which I may have mentioned earlier. First, we aimed to overcome challenges and create growth that generates profit. Now, at our 1-year mark after repositioning the company, we see significant growth opportunities, and I believe this will reflect positively on our bottom line. Second, we intended to expand geographically, and we want to continue doing that. We're not stopping at 20%; we aim to make this a larger part of our asset base, which diversifies our business risks and allows us to seek even higher growth opportunities based on our research. Third, we want to continue scaling in a profitable manner, which will require external capital. We'll pursue this when the timing is right, but we are actively exploring creative solutions with private portfolios that can help us with geographic expansion and scaling if we can agree on NAV instead of just current capital market pricing. These discussions may take time, but we are in talks on that front. We will also recycle funds from some low-growth assets to invest more capital in the Southeast for higher growth. While we're not utilizing parts of our playbook right now, we have many strategies in place, and we wanted to create options. If we secure a portfolio deal, we can move quicker. We'll continue to execute what makes sense at each stage, and feel free to add any thoughts.

No, I think that covered it, Steve.

And then just one last quick one for me. You have almost no debt maturing in the next several years. So of course, I’m going to ask about the one piece you do have, which is the 2.3% term loan next year. Should we just assume you’ll roll that into another term loan? And how much do you think rates have moved on that?

Well, look, I think that’s part of the optionality we have because that is debt that we can repay without penalty. And so we have the option of rolling that back into the bank market into another term loan. But I also want to keep open the possibility that we could pay it off if we got a hold of a portfolio and had to assume another kind of debt instead. And so we’re going to have both of those options. I think we could definitely extend it if we needed to. But I think it also might be the way that we can structure a potential portfolio transaction where we need to pay off some of our debt.

And the next question is coming from Michael Gorman from BTIG.

Paul, sorry if I missed it, but did you mention the deal that you walked away from because of the discipline on your underwriting. Did that ultimately trade with another buyer? Did they pull it off the market? Is that something that you think will come back as you talk about the next 30 days as sellers reset expectations? What’s the status there?

To our knowledge, and as of this call, that deal was pulled, and we would expect to see that deal potentially in the fall. I believe we’ve done our homework, properly assessed the asset, and calculated the risk, and we stand behind our valuation for acquiring that asset.

And then maybe as you talk about your underwriting and then what you’re seeing in the market. And obviously, WashREIT is being disciplined here. Have you gotten more conservative with your underwriting in terms of rent growth over the past 30 to 60 days as you’ve looked at the macro environment? Do you have a sense? Obviously, the capital markets have been having an impact on cap rates. But have you had a sense that buyers are shifting their underwriting expectations for rent growth in the apartment market as well?

Michael, let me answer that in two parts. I would say our team has always been disciplined in our underwriting, and we've never believed that the current growth rates are sustainable. Last year, when we were losing deals, we took the market rent growth from the first year and adjusted it down to high single-digits in the second year, before returning to the historical norm of mid to low single-digits by the beginning of the third year. I think we are still comfortable with those projections, although we are being slightly cautious. We are also looking more closely at historical data regarding accounts receivable and bad debt. Additionally, while we have a strong physical team, we are anticipating a more moderate increase. We've observed that the active buyers in the market currently, who are successfully closing deals, are primarily all-cash buyers or are operating with mid-level loan-to-value ratios. I think they have tightened their underwriting strategies, particularly focusing on the credit aspects related to net operating income.

That’s really good color. And then maybe one more on the underwriting. As you’re doing this transition to the in-house property management, you’re doing the technology rollout, all of those things. How does that factor into how you consider the expense side of your underwriting when you’re looking at these assets, your ability to maybe drive better NOI through the efficiency side as your underwriting assets? Is that something that you’re not kind of putting through the models yet just because you’re still early in the transition? Or how does that factor into how you’re looking at assets?

We certainly factor, Michael, this is Steve. We factored it into our modeling of onboarding all of this. I don’t know that we’ll get the full benefit of it until we actually have everything in-house and is running. But as we look at our property management expenses, about 70% of that is what we pay third parties. And then the balance of it is split between our own internal management overseeing it, doing our overnight pricing and asset management and all of the properties today and then our own technology charges on top of that. We believe that when you cut out the third-party services and all in that, we have a very scalable base of technology and corporate structure ourselves that there’s a net savings in all of that. Plus, in terms of efficiency and staffing, when you own it yourself, you can operate it consistently across all your properties according to your own model. So there are things like centralization of certain functions, et cetera, that are factored into our long-term cost structure. We’re factoring it into it. I think it’s going to take until about mid-year of next year before all of the properties we currently own are internally on the same system. But thereafter, we believe we’ll start to realize some of those savings too.

And maybe one last one for you. You talked about some of the potentially interesting or innovative transactions in the NAV-to-NAV side for private portfolios. Just of the $125 million of acquisition guidance targeted for kind of fourth quarter of this year. Are any of those private portfolios kind of targeted in that number? Or are those more traditional one-off deals that you’re seeing in your pipeline that you’re underwriting right now?

We have traditional deals in our pipeline, and as Paul mentioned, we expect our pipeline to grow after Labor Day, potentially including some previously passed opportunities that may become viable again. We're also pursuing assets that could exceed our current expectations, which is our current focus. These are not the typical portfolio, NAV-to-NAV structures, which can be challenging to negotiate, but we are exploring possibilities that could enhance value and accelerate our geographic expansion. In addition, we continue our usual market activities, collaborating with brokers and property owners to acquire assets.

The next question is coming from Bill Crow from Raymond James.

I have a couple of quick questions and then one more strategic question. First, regarding bad debt, I believe you are discussing it more than others in the multifamily sector. I'm curious if this issue is more related to specific markets or if there is a broader reason why you seem to be facing greater challenges with bad debt compared to your peers.

I believe the timing is a key factor here. We experienced relatively low bad debt in the first quarter, while others faced more significant challenges. It reflects where we currently stand in relation to the program. Regarding broader questions you may have, it’s important to clarify that this isn’t an issue concerning income or renters' ability to pay. I’ll let Grant provide further insights shortly. At present, we’ve returned to pre-pandemic rent levels, and incomes are considerably higher. The main concern lies in obtaining possession of space rather than renter payment capabilities. In fact, for the units with some delinquency, once we had the chance to start repossessing, we observed trade-outs of 14%, 15%, and even 17% in some properties, indicating a strong market with the means to afford rent. Grant, would you like to elaborate on the macro factors and income levels?

Sure, happy to. Yes. So in our portfolio, our average rents have increased approximately $350 since March 2020, with the onset of the pandemic. Meanwhile, in the Washington metro, monthly incomes across the region have grown about $570. And we mentioned in the call within our portfolio, our actual residents incomes are up 12% year-over-year in the Washington region in really just over the last 6 months comparing to end of 2021 with the beginning of 2022, incomes are over 14% for our residents in our Atlanta properties. So as Steve said, it’s really not a wherewithal issue at all in terms of incomes versus rents.

Second question, I think you said retention was 68%. I think it was somewhere in that range of 60s. I’m curious how many of those people are leaving to buy houses and whether you think you’ve seen any benefit over the last month or 2 from the shoot-up in mortgage rates?

Yes, we certainly have both in our Washington market and in our Atlanta market. And our Washington market, the reason for move out to home purchase has declined about 20% compared to the prior year. Where in Atlanta, it’s been even more dramatic, and it’s about a 50% change. It’s actually under 9% move-out and that had been more in the high-teens as recently as the beginning of the year.

And then I guess bigger picture, Paul, one of the things that I’ve admired of you since we first met was your aggressiveness and your focus on driving shareholder value. And I’m just curious, as you continue to trade, what, 100 basis points wide of the multifamily REIT group on a cap rate basis. But also as you continue to build out your company and add a lot of employees, does it change the way you might think about selling the comp, if you were to get a bid, how you might react to that?

Bill, I think in our first discussion way back when I said, first and foremost, we’re going to do the right thing for the shareholders. I think right now, we’re trading down along 52-week lows in that region. 90 days ago, we were at a much different number and had broader options. But I think what we’re doing right now is creating value for our shareholders. I think everything we’re doing with project reimagine, bringing the operations back in-house, diversifying our portfolio, recycling out of lower-growth assets into higher-growth assets. Our thesis and our execution has always lent itself to creating value for our shareholders. I know the cap rates that we’re trading at right now. Do I think that we can do better? I think when you start seeing our next quarter’s performance, maybe the next 5 quarters performance, I think our stock will improve. And we’re not a group that picks up our jacks and goes home when we hit a speed bump. I still think there’s a lot of value to create here. But of course, we’re always going to do what’s in the best interest of our shareholders, and we’re going to be consistent about that, Bill.

The next question is coming from Alan Peterson from Green Street.

I was just hoping to get some more color around the lower growth D.C. assets. And in terms of the initial marketing or when you guys are having those marketing discussions, can you share what pricing is looking like for those types of assets? And amongst the 3 submarket locations, Maryland, D.C. and Virginia, where we could potentially see some of those dispositions come out of?

I think right now, we are seeing strong trade-outs in D.C. However, there are a few challenges. One is that we had limits on rent increases over the past 24 months, which have now been lifted. Many buyers and brokers want to see more seasoning and clearer ARR numbers. Despite this, we are confident in the market's potential. D.C. has historically performed well when other areas struggle, so I believe there's still a lot of opportunity. The main issue in D.C. is TOPA, which complicates leverage for buyers, especially on deals with forward rate locks where TOPA could take six months, preventing a spread lock. This has slowed the deal pace. Overall, as we mentioned earlier, D.C. is recovering and may even be performing better than it did before the pandemic. It’s just a matter of time, as more cautious investors are focusing on credit standards set by operators. In Virginia, Northern Virginia is the most active area in our region. The macro economy is thriving, and deals are receiving more attention. There are likely two to three times as many apartment deals in Northern Virginia compared to D.C. at this time. There are no significant accounts receivable or bad debt issues, and trade-outs in Northern Virginia are looking excellent. Maryland is also experiencing activity, though not at the same level as Northern Virginia. In Montgomery County, particularly along the I-270 corridor, rent caps are being lifted, and job and wage growth are attracting investors, especially in the Life Sciences Corridor. We are optimistic about the current market conditions and believe it is returning to us. In terms of potential sales, we focus on opportunities to transition from moderate to higher growth assets, expecting minimal dilution in this process.

Alan, you mentioned the capital markets discipline. And back in 4Q ‘21 and 1Q ‘22, you guys brought some market some ATM issuances. Is ATM issuances still part of the go-forward funding plan for acquisitions today? And can we anticipate any ATM issuances over, call it, the next 2 quarters at these pricing levels? I wouldn't suggest issuing equity before doing so and potentially creating downward pressure on the stock. While at-the-market issuances are part of our strategy, we're not considering them at the current stock prices. It doesn't make sense for us to issue equity right now. We could look into exchanging units on an NAV-to-NAV basis in a structured deal, as that would provide a different relative value. However, we were at $26 just three days after this call last quarter, and we're not at that level today. So, at these prices, it doesn't make sense, but we will be ready to utilize that option if it becomes viable and if equity markets improve.

Maybe just one last one for me on the transition. I appreciate the comments on the human capital side. Are you guys running into any difficulty either at the corporate level or at the on-site level in terms of hiring? And what positions are you running into the most difficulty with?

Steve and I will ham and egg this one. First off, yes, it’s a very competitive labor market, not just attracting but retention. And so we’re all eyes on that in terms of our human capital model, and our Head of HR has been very proactive, especially on the retention side. But in addition, I would say that we’re trying to build up our corporate infrastructure to prepare for the onboarding later this year, and as Steve said, into mid-next year. I think it’s really been at the property level. I think we have a good start on that, obviously, with our third-party managers, and we expect a lot of seamless transition there as we onboard those employees that come along with the properties. I think at the corporate level, it would probably be very job specific. Steve, I don’t know if you want to add.

I think you captured it well. We have a weekly status update on the positions we want to onboard and are currently building the necessary infrastructure and leadership. We have been actively recruiting our own third-party management staff for a couple of quarters and maintaining communication with them. This is part of our initiative to integrate multiple cultures into our mission and vision for the target renters. We are unifying three cultures into one, and a lot of work has gone into ensuring that our employees feel proud to work here. We are examining various aspects, including incentive programs, how we reward individuals, and how we can make them feel included in our objectives. Many individuals in the communities have already been specifically identified to join us, and while we will need to recruit further due to a challenging job market, we have good visibility on this process and have been working on it for a couple of quarters.

Yes, the only other thing I’d add, Alan, is just obviously, workplace flexibility is high on a number of people’s agendas and we’re trying to incorporate that into our human capital structure moving forward.

There are no more questions in queue. I would now like to hand the call back to Paul McDermott for closing remarks.

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 weeks. Thank you, everyone.

Thank you, ladies and gentlemen. This does conclude today’s conference. You may disconnect your lines at this time, and have a wonderful day. Thank you for your participation.