Veris Residential, Inc.

Good day, everyone, and welcome to Veris Residential's first quarter 2022 earnings conference call. Today's call is being recorded. I would like to remind everyone that certain information discussed on this call may constitute forward-looking statements within the meaning of the federal securities law. Although we believe the estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved. we refer you to the company's press release, annual and quarterly reports filed with the FSEC for risk factors that impact the company. With that, I would like to hand you over to Mahbad Nia, Ferris Residential Chief Executive Officer. Please go ahead, sir.

Good morning, and welcome to our first quarter 2022 earnings call.

Before we begin, I want to congratulate our CFO, Amanda Lombard, on the new addition to her family. The first quarter of 2022 was another positive period for us as we continue to advance our transition to a pure-play multifamily REIT. We achieved strong operational performance across our multifamily portfolio, commenced leasing of House 25, our newest multifamily development in Jersey City, entered into an off-market transaction to expand our multifamily portfolio through the acquisition of the James, a recently built Class A 240-unit property in Park Ridge, New Jersey, and closed on the sales of four land parcels. The operating fundamentals across our 6,691-unit multifamily portfolio continue to improve during the quarter, with occupancy at 97.5% and a blended net rental growth rate of 16% as of March 31st, up from 13% in the previous quarter. We've seen demand begin to accelerate ahead of the peak leasing season. However, consistent with the wider industry, we anticipate occupancy may be at or close to peak levels, and as such, we'll focus on finding the optimal balance between occupancy and rental growth to drive NOI going forward. Our 5,825-unit same-store operating portfolio, which for the first quarter included the Emory in Massachusetts, was 97.2% occupied as of March 31st. up from 89.8% in March 2021 and 3.6% above pre-pandemic levels, driving year-over-year same-store revenue and NRI growth of 14% and 20% respectively. Our Class A multifamily portfolio offers a distinctive living environment that aligns with our residents' sustainable lifestyle preferences and increased focus on health and well-being. The success of this strategy is evidenced by the strong initial demand we've experienced at House 25, which commenced lease up on April 6th and is already over 28% leased. As we continue to enhance our multifamily platform, I'm pleased to share that our new website will be launching at the end of next week. The new website offers prospective residents, employees, and investors a wide range of market-leading features, including the ability to search for availability across our properties, conduct virtual viewings, and communicate with the on-site teams all on one user-friendly platform. During the quarter, we continued to monetize non-strategic assets, completing the disposal of 111 River Street in Hoboken in January for $210 million, and repaying the associated $150 million loan. We used net proceeds from this sale, as well as from the sales of two land parcels in West Windsor that also closed during the first quarter to pay down our revolving credit facility balance by $70 million. In April, we completed the disposal of the Irby land parcel in Jersey City and a land parcel in Port Imperial for a total of $100 million and expect to close on the remaining two previously announced land sales for $25.5 million in the coming months. A portion of the proceeds from our land sales is being reinvested utilizing a 1031 exchange to acquire the James. A newly built 99.5% leased Class A 240-unit apartment building located in Park Ridge for $130 million or a 4% cap rate and an off-market transaction that is expected to close during the second quarter. The James is a great fit with our existing portfolio, given its 2021 vintage, which is consistent with the comparatively low six-year average age of our portfolio relative to peers, its extensive amenity offering, and its sustainability credentials as evidenced by the property being awarded the National Green Building Standard Silver Certification. Park Ridge is in one of New Jersey's most populous and affluent areas, just 25 miles northwest of Midtown Manhattan. The property is also just steps away from the train station, offering great accessibility to New York City. Upon closing, the James is anticipated to contribute approximately $0.05 to annual core FFO per share based on in-place NOI. The transaction demonstrates our ability to source attractive risk-adjusted opportunities as we seek to create long-term shareholder value. As we look to our office portfolio, the waterfront assets were 70.9% leased as of the end of the first quarter. In January, as previously disclosed, we executed a new 15-year, 130,400 square foot lease with Collectors Universe at Harbourside 3. During the first quarter, we also executed an additional 11,800 square feet of leases. Turning to the financials, the company reported a net loss per diluted share of 13 cents in the first quarter of 2022 versus net income of 6 cents per diluted share in the first quarter of 2021. On a GAAP basis, the net loss includes $23 million of revenue related to the termination of a portion of MUFG space, which has been excluded from core FFO. Core FFO for the quarter was $0.09 per diluted share versus $0.17 in the fourth quarter of 2021. Last quarter's core FFO benefited from $0.04 related to one-time true-up adjustments and expense recoveries for the office portfolio, including sold assets. Excluding these one-time items, the first quarter of 2022 was lower than the fourth quarter by $0.03 as a result of the sale of our Hoboken asset, $0.01 due to the loss of revenue on the space vacated by MUFG, which we expect Collectors Universe to take possession of in June, and a $0.02 reduction in hotel NOI, partially due to reduced bookings related to Omicron, as well as the normal first quarter seasonal variation. These reductions are offset by a $0.02 increase from interest savings related to a lower average credit line balance and higher multifamily NOI, driven by lower concessions and higher rents. We also recorded the first full quarter of income from the three most recently stabilized assets, the Upton, Capstone, and Riverhouse Mine, and anticipate further revenue growth across these properties as concessions continue to burn off in the coming months. During the quarter, we spent $10.4 million on tenant improvements and leasing commissions related to the Collector's Universe lease and continue to work on our Jersey City Whole Foods build-out, resulting in AFFO negative $700,000 compared to $13.7 million in the prior quarter. We expect tenant improvements and commissions next quarter to be at similar levels as we look to turn over the space to Collector's Universe. It should be noted, however, that these costs will be fully funded by the $25 million cash termination fee that we received from MUFG. Looking to our same-store results, same-store NOI was up 20% year-over-year and almost 7% quarter-over-quarter, driven by a combination of higher occupancy and rents and lower concessions. We continue to see strong pricing momentum going into the high leasing season. However, consistent with the industry, we're also seeing pressure on controllable property operating expenses. in particular personnel costs and repair and maintenance expenses, as the tight labor markets, general inflationary pressures, and supply chain issues continue to bear weight. Our waterfront multifamily properties, which represent roughly two-thirds of our current multifamily portfolio, granted concessions through the third quarter of 2021, from which we'll continue to benefit in the coming months as they burn off. Over the last 12 months, we've taken a number of steps to strengthen our balance sheet by repaying debt. With approximately three-quarters of our debt exposure hedged or fixed at a weighted average interest expense of 3.78% and a maturity of 5.2 years, we believe that we're in a strong financial position relative to the current market environment and potential Fed rate hikes. With that, I think we're ready for questions. Operator, can you please open the line for Q&A?