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Tiffany Butcher

Thanks, Paul. Starting with supply/demand dynamics in our markets. Overall, we are well-positioned as we believe Elme submarkets will face less supply pressure than the U.S. and Sun Belt markets generally, with projected average annual net inventory growth of 2.2% over the next four quarters, while the U.S. and Sun Belt are expected to see 2.8% and 4.6% growth, respectively.
Our DMV portfolio remains very well-insulated from new supply with quarterly net inventory ratios averaging 1.7% in Elme submarkets this year, below the regional average of 2% based on current expectations.
On the demand side, the trends are healthy and stable, supported by the limited availability of high-quality housing that is affordable to middle income residents. We anticipate another year of favorable supply/demand dynamics in the DMV.
In Atlanta, we expect to see gradual improvement in the supply dynamics with a more significant improvement in 2026. The weighted average net inventory ratio peaked at 4.3% in the first half of 2024 across our Atlanta submarkets and is expected to remain relatively flat in 2025 compared to the 3.8% in the fourth quarter of 2024.
On a positive note, annual absorption has been very strong and is expected to be nearly 40% higher in 2025 compared to 2024 in Elme submarkets which should help to balance the impact of new deliveries as the year progresses.
Turning to operating trends, same-store blended lease rate growth averaged 1.3% in the fourth quarter and 1.8% in January for our 2025 same-store pool. Same-store occupancy averaged 95% during the fourth quarter, up 20 basis points sequentially. Retention rates remain above historical levels and our move-outs to own remained very low during the fourth quarter at 8.5% as there is limited existing inventory and home ownership remains unaffordable for many middle income renters.
On a year-to-date basis, same-store occupancy has trended up slightly, averaging 95.1%. We are targeting an average occupancy range of 95% to 95.5% for the year which reflects a more normalized year in the DMV compared to strong occupancy gains in 2024. We are expecting an improvement in our Atlanta portfolio in the second half of the year as delinquency-related occupancy pressure subsides and the supply/demand dynamic and imbalance improves.
Turning to renovations, we completed about 500 full-renovations in 2024 at an average cost of $17,000 per unit, achieving an average renovation ROI of approximately 17%. In 2025, we expect to complete another 500 full renovations at similar costs per unit, yielding a targeted 17% ROI. For our renovations program, we are targeting communities that have the greatest potential for outsized rent growth and maintain flexibility to adjust the pace of renovations as market demand shifts.
Lastly, I'll speak to our operating initiatives. In 2024, we captured approximately $1.8 million of additional NOI growth from these initiatives which is in line with expectations that we communicated at the start of the year. In 2025, we expect to capture $1.8 million of additional cumulative growth which will mark the achievement of our three-year target of $4.25 million to $4.75 million announced in early 2023.
Beyond our three-year target, we are in the process of rolling out managed Wi-Fi and expect to capture 300,000 to 600,000 of additional NOI in 2025 from phase one of our initiative which includes seven communities. Looking forward, once phase one of our managed Wi-Fi initiative has been fully integrated into our lease roll, which we expect to occur in mid-2026, we expect to capture approximately $1 million to $1.5 million of additional NOI per year with further upside from future phases.
And with that, I'll turn it over to Steve to cover our 2025 outlook.

Steve Freishtat

Thanks, Tiffany. Turning to our 2025 guidance and related assumptions, we expect same-store multi-family revenue growth to range from 2.1% to 3.6% in 2025. Embedded revenue growth or the growth that has already been captured based on 2024 leasing was about 70 basis points at the start of the year and 80 basis points at the end of January.
The building blocks that add up to the midpoint of our guidance range include approximately 1% of rent growth driven primarily by our Washington Metro portfolio, 0.7% of growth in fee income from our operational initiatives, approximately 25 basis points of bad debt improvement, and approximately 20 basis points of occupancy growth.
Moving on to expenses, same-store operating expenses are projected to range from 2.75% to 4.25% for the year. Non-controllable expenses are projected to grow 2% to 3%. And controllable expenses are projected to grow between 4% and 5%, which includes technology expenses related to our managed Wi-Fi and other ROI initiatives.
Watergate 600 NOI is expected to range from $11.5 million to $12.25 million, representing a decline of approximately 6% at the midpoint due to an anticipated decline in occupancy over the course of the year and higher utility expenses. We expect occupancy to end the year between 81% and 82%, representing a decline of approximately 3% compared to current occupancy of 84.7%. While the sale of Watergate 600 is not included in our guidance, we continue to look to opportunistically monetize the property.
Interest expense is expected to range from $37.35 million to $38.35 million for the year. In December, we executed the first of two one-year extension options on our $125 million term loan which is now set to expire in January 2026, and we have no other debt maturing before 2028.
Our balance sheet remains in very good shape with annualized adjusted net debt-to-EBITDA of 5.7 times during the fourth quarter, over 60% of our total capacity available on our line of credit and no secured debt.
Turning to core FFO, the drivers of our 2025 core FFO per share at the midpoint include $0.04 of growth from our same-store multi-family portfolio offset in part by a $0.01 decline from Watergate 600, $0.01 decline from higher G&A, and a $0.05 decline from other items.
And with that, I'll turn it back to Paul.

Paul McDermott

To wrap it up, our 2025 outlook reflects another good year of performance from our Washington Metro portfolio and improving trends in Atlanta. Across Elme submarkets in the DMV, strong supply/demand dynamics, and limited value-oriented housing options create a favorable leasing environment. In Atlanta, we anticipate a gradual improvement in market dynamics, paving the way for a strong 2026.
Before turning to Q&A, we'd like to reiterate that we do not have any additional information or updates to provide at this time regarding the strategic review beyond the information we've already provided. Therefore, we request that you focus your questions on our results, business initiatives, and outlook. We appreciate your cooperation.
And now, operator, I'd like to open it up for questions.

Question and Answer Session

Operator

Thank you. At this time, we'll be conducting our question-and-answer session. (Operator Instructions) One moment, please, while we pull for questions.
Anthony Paolone, JPMorgan.

Anthony Paolone

Great. Thank you. Good morning. I guess my first question revolves around just the potential impact of what's happening with the new administration in your market. You all have been effectively a pure-play in that market for a long, long time. And there have been changes in different agencies, moving people and doing things of that nature. What's been the experience in the past when there is, say, a big change in the government near a property? Is there a way to put some brackets around how that has affected leasing or rents? Any anecdotes there would be helpful.

Paul McDermott

Tony, it's Paul. Let's go back just in terms of regional impacts. I think the last event we probably would have had would have been sequestration. And that had a tremendous impact on the industry just in terms of really paralyzing some of the progress, some of the leasing, some of the growth. But I would say we're in a different time now. The federal government probably back then really was probably the central engine that drove our economy. I think now technology has really taken over, and we really are seeing still tremendous amount of growth, especially in the northern Virginia, where the bulk of our residential portfolio in the DMV is located. I think what's obviously different about this time is there appears to be a macro strategy of addressing government expenses. But it seems a little fractured right now, moving forward.
So in terms of, we look back -- as I said in my remarks, we look back at the growth in the private sector, we look at where the growth is coming from, and it's not coming from the federal government and it really hasn't been coming from the federal government for the last decade. So we're very comfortable. And Grant can talk about our resident composition, some of the demographics associated with that. But we feel very comfortable about the businesses that are growing here in the private sector and its respective impact on our residential base. Grant, do you want to add any more color to that?

Grant Montgomery

Sure. Speaking generally just to reiterate what was in the script on slide 11 that was referred to is that if you look at non-DOD federal jobs in the Washington region, our exposure is about 6.2%. And if you drill down to any single agency, we're sub-1% for any single agency. And so many times we're talking one, two, three, four, five people, sort of the typical exposure to any single agency once you get outside the (inaudible) adjacent agencies.

Anthony Paolone

Okay. Thank you for that. And then just my follow-up question, can you give us any update or thoughts on where market cap rates might be for the types of assets typically in your buy box?

Paul McDermott

Tony, again, it's Paul. I'll just start off and kind of give you some macro observations on what we're seeing in the capital markets. For core deals, we're really seeing buyers -- today's buyer kind of looking for that 9% to 11% IRR and that's translating into a 4.5% to a 5% cap. For core-plus deals, we're seeing ranging in that 4.75% to 5.25%. Again, depending on the type of leverage folks shooting for, an 11% to a 13% IRR. And then value-add, more in that 5% to 5.5% space. We've seen it go up to a 6% or even a touch higher depending on the vintage of the product with those buyers looking for leverage 13% to 15%. For our type of product, we think we're in that value-add space and so we feel very comfortable about the strength of our portfolio moving forward.
When we look around at the markets right now and the reason why we're optimistic about this year, there's just a tremendous amount of liquidity in the debt markets. The GSEs, both Fannie and Freddie, both have $73 billion in allocations for a total of $146 billion. Definitely seeing a pickup in the bridge market, especially on lease-up deals. And life companies are back and they're being pretty aggressive in those 50% to 55% LTV deals. A lot of seller, a lot of private equity sales coming to the market. We're seeing a tremendous amount of BOVs being conducted in this region. Some merchant builders, but I think the larger are PE firms that are looking at maybe opportunistically redeploying other capital and other asset classes and geographies.
The other thing I note, Tony, is that we're definitely seeing bigger deals are coming back now. I think late '22, '23, and last year particularly, a lot of that 40% to 75% space. Even the deals we've seen come out since January 1, a couple of deals over $100 million, so people are definitely moving to the aisle. And a number of the originators that we talked to, really a term they use, just about getting out and getting in front of the market.
The buying, we've just seen buyers all across the spectrum. And I think our big macro takeaway from this is we're continuing to see a tremendous amount of capital flow into the living sector, in general. And so we think that -- I think the numbers I saw -- in 2024, we saw about $137 billion being done in transaction volume. This year, I think the numbers people are forecasting are more towards like $150 billion.
So another big year ahead. We think there are going to be a lot of recaps coming before some of these liquidations. But I would tell you, even going back to what we feel was a good acquisition of Druid Hills, the discounts and replacement costs are shrinking. And that was a key element for us and we think they're going to continue to decline as the year progresses.

Anthony Paolone

Okay. Great context. Thank you.

Operator

Jamie Feldman, Wells Fargo.

James Feldman

Great. Thank you and good morning. Just a couple of follow-ups from some of the comments you made on the call. I guess to start, you mentioned your lease rates through the year, can you talk about your your view on seasonality? I mean, it just seems like there's a lot of moving pieces in the D.C. market this year. Do you think you'll see, acceleration into 2Q-3Q and then drop off? Are you thinking things get better in 4Q? Can you maybe talk through your outlook for new leases and blends?

Tiffany Butcher

Sure, I can absolutely, Jamie. This is Tiffany Butcher. Happy to walk through that. I would say if you are looking at just a Washington D.C. portfolio, we are expecting another normal year of seasonal growth in the Washington D.C. area with, obviously, peak leasing occurring during our spring and summer leasing season. In Atlanta, we expect to see gradual improvement throughout the year as we continue to see improvement in the supply/demand dynamics in that market.
If you want to look at the portfolio as a whole, we're projecting our newbie rate growth to be between a decline of 2% and a positive 0.5%. For the full year, we expect renewal lease rate growth of between 3% to 5.25%. Renewal lease rate growth continues to be a strong driver of growth for us. And then blended lease rate growth we're projecting between 1.25% and 3% for the portfolio overall.

James Feldman

Okay. Thank you for that. And then I guess just thinking about your outlook for the year. Are you on hold now trying to sell assets? Moving to other markets, Watergate, is that on hold? Or are you guys just going to continue with the plan you have and the strategic review is more of a sideshow?

Paul McDermott

Well, Jamie, we put out our 2025 guidance so all of the underlying assumptions are in there. And then as far as you know our operations go, we are -- in terms of -- you mentioned expansion markets, I think what we are most focused on is getting the best performance we can out of the assets that we currently own right now. And Tiffany and her team are doing an outstanding job in terms of the new initiatives, the renovations, other capital allocations that we think are going to be accretive for our shareholders as we want to keep our eye on the ball day to day and all of the operations that we have throughout the company as we undergo this strategic review process.

James Feldman

Okay. And then I guess thinking specifically about Watergate. I think we're getting a little more optimistic. You get some leasing done there. I think the Kennedy Center was out there as a potential option. Obviously, a lot of change going on there. Can you update us on conversations around the Kennedy Center specifically or just your leasing prospects there? And then I know you include a $0.01 drag in guidance for operating that for the full year. If you were to sell it, do you think that takes your numbers up or down further?

Paul McDermott

Well, just right now, we have good walls on the property and I think there's a lot of good activity. We've had in place renewals that took place in 2024. As I mentioned, I believe, on the last call, we are in discussions with our largest tenant that is a '27 expiration, and we feel good about the prospects there. And we're also in discussions with some of the smaller tenants for renewal in place. And obviously, better for us, better from a TI standpoint, from a free rent standpoint. So collectively, I think, overall, we're feeling good.
Concurrently though, Jamie, as we said in the past, we will be opportunistic as we look at the capital markets. I would say not only has the D.C. market improved in terms of the type of activity that we're seeing in the marketplace from a leasing standpoint with tenants, the thaw seemed to take place in 2024. And so we're definitely seeing more activity now. I think even more -- another error in the quiver for a buyer is the liquidity in the debt markets. And we're actually seeing CMBS deals done on office product downtown.
So we feel like the environment is coming towards us. We feel like we have some tailwinds instead of headwinds. And so we're going to try to be opportunistic. But we've got a job to do at Watergate and that is to get it to the highest leasing percentage we can get, and we're going to continue on that path.

James Feldman

Okay. But I guess -- so if you were to sell it, do you think that's accretive or dilutive, the earnings?

Paul McDermott

I'm not going to speculate on the type of pricing that we're going to get, Jamie. Right now, we haven't really tested the market. So we'll both move forward. And hopefully, we can have something positive to say in future calls.

James Feldman

Okay. And then, I know you said not to talk about the strategic review, but I guess this would have been a question even before you announced this. Can you talk about the frictional costs if you were to sell the company? Whether there's taxes that people need to factor in to NAVs or comps? Or just any other pieces? Because I think the market naturally goes to here's the NAV but then there's always a drag on that. Can you just talk through some of those moving pieces?

Paul McDermott

Jamie, what I can say -- first off, thank you for the thoughtful question. What I can say is the Board and the management team are committed to acting in the best interests of the company and its shareholders. There's no timetable or deadline set for the completion of this Board-led strategic review. We'll provide an update if and when appropriate. But beyond the information in our release, we don't have any information to share or updates beyond that to provide at this time.

James Feldman

Okay. So you can't get into the frictional cost?

Paul McDermott

That's correct, Jamie.

James Feldman

Got it. Okay. And then just final question then. You talked about your composition of jobs in the portfolio, I think you said for two-thirds. If you were to just take a guess at the remaining one-third, would the numbers be pretty similar or is there something different we should be thinking about in terms of the employers?

Grant Montgomery

Jamie, this is Grant. I think you could extrapolate that out and say the composition would be similar.

James Feldman

Okay. All right. Great. Thanks and good luck with everything.

Paul McDermott

Thank you, Jamie.

Operator

John Pawlowski, Green Street.

John Pawlowski

Morning. Thanks for the time. Just a question with Tiffany. Your points are well taken on why D.C. is more insulated from potential shocks of federal employment. I'm just curious, on the ground and the considerable uncertainty, forget job losses and potential job losses, but the uncertainty swirling around the tenant base, pick your favorite leading indicator for traffic, your closing rates on tours. Are you seeing any kind of leading indicators to suggest that the uncertainty around employment's leading to a pause in leasing decisions and tenants in the market?

Tiffany Butcher

John, thanks for the question. Year-to-date, we are seeing very normal seasonal leasing trends. We have not seen any atypical impacts on traffic or leasing across any of our key metrics. The outlook overall for the DMV in terms of supply/demand dynamics remains incredibly strong. And we think that our mid-market rent positions as well as Class B demand trends tend to be more consistent relative to other asset classes. Well, obviously, we continue to monitor all of the new developments very closely. We'll have to see how it plays out over the next few months. But based on what we're seeing on the ground today and our Class B position, we think we are positioned well to have another good year in the DMV.

John Pawlowski

Okay. Then last one for me, the Atlanta same story, the sequential growth rate was quite high. I know a few properties can really move the needle, but was this a function of bad debt improvement and volatility in bad debt? Well, I think there was about 6% sequential growth in Atlanta this quarter. Any color there would be helpful.

Steve Freishtat

John, this is Steve. And you're right for about half of it, so we had 6% sequentially and about half of it was an improvement in bad debt that we saw in the quarter in Atlanta. The other portion of it was a business interruption insurance proceeds from a property down there that had a fire earlier in 2024.

John Pawlowski

Okay. Thank you for your time.

Operator

(Operator Instructions)
Cole Bardawill, Wolfe Research.

Cole Bardawill

Hey guys. Thank you very much for the time. I just had one question on occupancy in D.C. You mentioned it was going to be more of a normalized year. Are you expecting any occupancy erosion this year in '25 or you're kind of expecting it to hold relatively flat?

Tiffany Butcher

Obviously, we had a very strong year of occupancy in the DMV last year, being in the 96% range. And we expect the DMV to remain in that 96% range next year. And then we obviously are expecting a gradual improvement in occupancy in Atlanta.

Cole Bardawill

Okay. Got it. And then just one more that I noticed in D.C., Maryland, you had some pretty high property operating expenses this quarter. I was just curious if there are any big drivers for that.

Steve Freishtat

It's a call in D.C. in the fourth quarter on the property for non-controllable that we saw in D.C. and it's on the utility side we saw a couple of true-ups at some properties that hit in the fourth quarter and really drove that in the DMV.

Cole Bardawill

Okay. Awesome. Thank you.

Operator

Thank you. As we have no further questions on the line at this time, I will hand the call back over to Mr. McDermott for any closing remarks.

Paul McDermott

We'd like to thank everyone for their time today. And we're looking forward to seeing many of you and talking to you in person over the coming weeks. Thank you, everyone.

Operator

Thank you. This does conclude today's conference. You may disconnect your lines at this time. We thank you for your participation.