Veris Residential, Inc.

Good morning and welcome to the Veris Presidential Third Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Taryn Fildo, the General Counsel of Varus and Residential. Please go ahead.

Good morning, everyone, and welcome to Varus Residential's third quarter 2022 earnings conference call. 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 laws. 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 and annual and quarterly reports filed with the SEC for risk factors that impact the company. With that, I would like to hand you over to Mahbub Nia, Ferris Residential's Chief Executive Officer. Mahbub?

Good morning, and welcome to our third quarter 2022 earnings call. I'm joined by our CFO, Amanda Lombard. During the quarter, we continue to make meaningful progress on our strategic transformation, despite the significant market volatility, while delivering a fourth consecutive quarter of strong rental and NOI growth across our multifamily portfolio. As evidenced by our binding agreement to sell Harborside 1, 2, and 3, and the completion of the sale of 101 Hudson Street, we're now in the final phase of our transformation, Inclusive of these transactions and pro forma for the stabilization of House 25, multifamily will represent approximately 98% of NOI, up from 39% around 18 months ago. Looking ahead, the sizable proceeds anticipated from Harborside 1, 2, and 3, in addition to potential further non-strategic asset sales, will provide the company with substantial liquidity as we seek to conclude our transformation. Our 6,931-unit multifamily portfolio had occupancy of 95.8% and achieved a blended net rental growth rate of 20% during the quarter. Headline rents continue to grow, and the loss to lease in the portfolio reduced from 5% to approximately 2% during the quarter, as we continue to capture upside in our portfolio, notwithstanding the challenging macroeconomic backdrop. From a leasing perspective, we're seeing some signs of mounting pressure on consumers and businesses. due to rising inflation and interest rates. While we're not immune from these forces, we believe that our Class A multifamily properties possess unique characteristics. They are well located, modern, and well amenitized, and as such, should prove somewhat resilient due to their compelling relative value proposition, especially relative to New York City. Of particular note, while New York City rents are cooling on the whole, the luxury segment has held up comparatively well given the limited supply. This is evident in our October blended net rental growth rate that remained strong in the mid-teens, but softened somewhat compared to the 20% achieved in the third quarter. Our residents on the whole are seemingly well positioned to absorb the impact of increasing rents and inflationary pressures, as evidenced by the increase in the average income of residents who signed leases during the third quarter as compared to the second quarter, and a more than 20% increase compared to the same period last year. We maintain strong leasing momentum at House 25, with the property now 82% leased and 76% occupied, resulting in increased NOI contribution this quarter that Amanda will discuss in greater detail. Our 5,825-unit same-store operating portfolio had occupancy of 95.7%, a blended net rental growth rate of 19%, and a same-store year-over-year NOI growth of 21%, reflecting burn-off of existing concessions and increasing rents during the quarter. The Crenshaw same-store NOI declined by 2%, driven by higher non-controllable expenses, namely taxes in Jersey City. Due to the steps we've taken to streamline our operations and cut costs, we were able to reduce our controllable operating expenses as compared to the prior year, despite the ongoing inflationary pressures. With regard to our corporate expenses, we've also taken steps over the past 18 months to right-size our expense structure to bring it in line with our mid-cap public REIT peers as a percentage of gross asset values. We anticipate further opportunities to optimize our overheads upon completion of our transformation. On the disposal front, as referenced earlier, this quarter we reached significant milestones on our path to becoming a pure-play multifamily REIT. We signed a binding agreement to sell Harborside 1, 2, and 3 for $420 million. The transaction is expected to close in the first quarter of 2023 and result in approximately $350 million in net proceeds. providing us with substantial anticipated liquidity moving forward. We also announced the completion of our sale of 101 Hudson Street for $346 million, resulting in $90 million of total net proceeds, including $15 million that was held as a deposit.