Veris Residential, Inc.

Good day, everyone, and welcome to Veri's Redemptional Second 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 assumption, we cannot give assurance that the anticipated results will be achieved. We refer you to the company's press release, annual and quarterly reports file in the SEC for risk factors that impact the company. With that, I would like to hand you over to Mahbub Nia, Various Redentions, Chief Executive Officer. Please go ahead.

Good morning and welcome to our second quarter 2022 earnings call. I'm joined by our CFO, Amanda Lombard. We are pleased to announce another solid quarter during which our multifamily portfolio again posted sector-leading rental and NOI growth, while maintaining occupancy at around 97%. These results reflect the significant steps we have taken over the past 18 months to notably transform the company, repositioning the portfolio and enhancing our operational platform. Today, NOI contribution from multifamily sits at 83% on a pro forma basis, up from 39% as of the end of the first quarter of 2021. And approximately 1,900 multifamily units have been added to our portfolio, representing growth of over 30% during this time. A significant increase in NOI across our stabilized assets, driven by strong demand across our properties, was evidenced by continued leasing velocity at House 25, which is now 66% leased and nearly 50% occupied. We also made progress in our strategic transformation, closing our acquisition of the James and signing definitive agreements for the sales of the Hyatt Hotel and 23 Main Street, our last remaining suburban office asset. The operating fundamentals across our 6,691-unit multifamily portfolio remained strong during the quarter, with occupancy at 97.1% and a blended net rental growth rate of 21%. a figure that was up from 16% in the first quarter and that we continued to maintain at around 20% through July. Loss to lease was approximately 5% across the portfolio, down from 6% in the first quarter, despite rising headline rents. I would like to thank our teams for their continued dedication and hard work, including the tremendous effort to lease nearly 500 units in House 25 in just four months. Our 5,825-unit same-store operating portfolio also maintained strong occupancy at 96.8% while continuing to increase rents in line with market trends. Same-store year-over-year NOI grew by 28%, the third consecutive quarter of sector-leading NOI growth, reflecting higher occupancy relative to last year and lower concessions and increasing rents during the quarter. As has been well documented, we are in an environment that is rife with economic uncertainty, with the two greatest risks at the forefront of investors' minds being inflation and a potential recession. While not immune, we continue to believe that the multifamily asset class, and in particular Class A properties, possesses unique characteristics that make it well-positioned to outperform in either of these scenarios. The shorter-term nature of our leases provides a natural hedge against inflation, with the ability to continue capturing rental growth, particularly as supply remains subdued and home ownership an expensive alternative. And rising construction costs and replacement values should provide support to capital values of standing stock. The defensive characteristics of multifamily, namely that it is a critical, non-discretionary expenditure item, should provide a degree of downside protection in a recession scenario. The proximity of our New Jersey portfolio to New York with our rents being approximately half of those in Manhattan, further supports this thesis. Looking ahead, we see our portfolio continuing to benefit from favorable market dynamics, including a strong tenant base, reduced affordability of housing alternatives, and limited supply across our key markets. On July 21st, we closed the acquisition of The James, a newly built 96.7% leased Class A 240-unit apartment building located in Park Ridge, for $129.6 million. The transaction is anticipated to contribute approximately 5 to 6 cents to core FFO per share in the first year on an annualized basis. Turning to asset sales, as previously announced, during the quarter we completed the disposal of the Irby land parcel in Jersey City and the land parcel in Port Imperial for a total of $100 million. We also signed definitive agreements to sell the Hyatt Hotel and 23 Main Street, our last remaining suburban office asset, for a total of $132 million. Together, these sales are expected to release approximately $20 million of net proceeds to the company. As we look to our office portfolio, as of the end of the second quarter, the waterfront assets were 70.6% leased. We leased 24,200 square feet, reflecting approximately 48% of the total leasing volume in the broader New Jersey waterfront market in the three-month period. We also continue to make meaningful progress in our efforts to become a more responsible, sustainable, and inclusive company. In May, we released our 2021 ESG report, in which we committed to reducing our Scope 1 and 2 emissions by 50% by 2030, a target we have validated by the Science-Based Targets Initiative, and that we are well on the way to achieving. As a result of our enhanced ESG efforts, today approximately 40% of our wholly-owned multifamily portfolio is green certified, lead or equivalent. Additionally, our introduction of new, more sustainability-focused policies at the corporate and property levels, as well as our enriched environmental and sustainability disclosures, have been accredited by two independent third parties, both of whom take a data-driven scoring approach to measuring corporate, environmental, and social disclosures. As of this past June, Various Residential earned a quality score rating of 1, the highest score from ISS for both environmental and social disclosures, up from ratings of 9 and 8, respectively, received in October 2020. And as of July, we saw a 26 percent increase in our arabesque S-ray score from ESG Book, a partner of Glass-Lewis, as compared to the prior year, putting us above the 90th percentile in the broader finance sector. These sector-leading ESG scores reflect our continued commitment towards our properties, people, and the planet, while seeking to create value for our shareholders. With that, I'm going to hand it over to Amanda, who will update you on our financial performance during the quarter.

Thanks, Mahbub. For the second quarter of 2022, net income available to common shareholders was 25 cents per fully diluted share versus a loss of 13 cents per fully diluted share in the prior quarter. Net income available to common shareholders was up quarter over quarter due to a large gain of approximately $55 million on the sale of land parcels. the proceeds of which were used for the acquisition of the James. Core FFO for the quarter was $0.15 per fully diluted share, as compared to $0.09 per fully diluted share last quarter. This increase was driven primarily by further sequential improvement in residential performance of $0.03 per share and hotel performance of $0.03 per share. Core G&A improved by $0.01 per share this quarter due to lower professional fees in the second quarter. The IRB tax credit contributed 2.5 cents per share to Core FFO, which as a reminder is recorded in the equity and earnings of our unconsolidated joint venture. Note that while we receive this tax credit annually, its timing varies and thus we have historically excluded it from our same store numbers and continue to do so now. All of this is offset by a 3 cent per share increase in interest expense due to a reduction in capitalized interest as a result of House 25 opening. As Maba mentioned, year-over-year and quarter-over-quarter same-store NOI was up 28% and 8% respectively. The year-over-year increase is driven by net rental growth of 17% and a modest increase in expenses of 2.6%, well below the current rate of inflation. The three lease-up properties that stabilized in the fourth quarter of 2021 contributed $3.9 million of NOI during the quarter, up 4.1% from last quarter. Looking ahead, our last significant COVID concessions will burn off in the third quarter, and we are expecting an increase in real estate taxes in Jersey City. While not final, we project a $3 million annualized tax increase, of which $2 million will be incurred in the third quarter. We remain well positioned to continue mitigating the impact of inflation on our controllable expenses. As evidenced by our efforts to streamline operations, implement ESG-related measures, and increase the utilization of technology, which coupled with recent investments in our teams will allow us to more quickly identify and respond to problematic trends in a timely fashion. This is exemplified through our same store margins, excluding property management fees, improving from 54.9% in Q4 2020 to 64.4% as of this quarter. In the fourth quarter, we expect to close the sales of the two assets that have recently gone under contract, subject to customary closing conditions. However, for 23 Main, we will lease back the site through the remainder of the tenant's lease term at the same rate, resulting in no impact to core FFO through lease expiration. This quarter also marks the first period in which House 25 began to contribute to earnings, ahead of our expectation, and we anticipate this contribution will grow significantly as the property reaches its stabilized occupancy. Finally, turning to our balance sheet, we refinanced the construction loan on Riverhouse 9 subsequent to quarter end. We also drew down $28 million on our credit facility to fund the acquisition of the James, which we anticipate repaying with the proceeds from the sale of land parcels under binding contract. Our net debt to adjusted EBITDA, which is quite sensitive to earnings, fell this quarter to 14.1 times versus 18.8 times in the first quarter due to the same factors which drove higher relative core FFO this quarter. As some of these factors, such as the IRB tax credit, will not recur next quarter, we expect net debt to adjusted EBITDA to fluctuate as we continue to work with the balance of the transition. By contrast, our debt to underappreciated assets ratio and our interest coverage ratio remain relatively constant at around 45% and two times, respectively. We believe our company is well positioned in a rising interest rate environment, with 76% of our total debt portfolio fixed and or hedged at a weighted average interest rate of 3.69%, with a weighted average maturity of five years. Our multifamily debt is 100% senior secured, primarily non-recourse, and none of it is cross-collateralized. With that, I think we are ready for questions. Operator?