Veris Residential, Inc.

Greetings and welcome to the Veris Residential Inc. fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Karen Fielder, General Counsel. Thank you, Ms. Fielder. You may begin.

Good morning, everyone, and welcome to Barris Residential's fourth quarter 2023 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 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 and annual and quarterly reports filed with the SEC for risk factors that impact the company. With that, I would like to hand the call over to Mahbub Nia, Veris Residential's Chief Executive Officer, who is joined by Amanda Lombard, Chief Financial Officer. Mahbub?

Thank you, Taryn, and good morning, everyone. Over the past three years at Veris Residential, we've accomplished a number of key strategic objectives. including $2.5 billion of non-strategic asset sales and the repayment of approximately $1 billion in net debt, de-levering, de-risking, and strengthening our balance sheet. We also negotiated the early redemption of Rock Point's preferred interest, strategically grew our multifamily portfolio by nearly 2,000 units through the development and stabilization of our four new properties and one acquisition, reinstated the dividend, and built a best-in-class vertically integrated platform encompassing new personnel, processes, and technologies. As a result, we have successfully transformed the company from what was once a complex, predominantly office REIT to a pure-play multifamily REIT. Our focus now turns to the significant opportunities available to us for continued value creation that I'd broadly categorize into three areas. First, continued operational outperformance through a number of platform and portfolio optimization strategies. Second, capital allocation initiatives focused on generating earnings and value creation to further boost the positive baseline performance from our multifamily portfolio. And third, further strengthening of our balance sheet. While a degree of earnings volatility is inevitable until we reach a mature state as a company, through a combination of these initiatives, we believe we have the potential to deliver continued relative outperformance as we seek to further enhance entity value for our shareholders over time. I'll discuss this in further detail, but first a few words regarding our markets and the economic outlook. Unlike many national markets that are facing a glut of near-term supply, the Northeast is expected to see a modest 1.5% inventory change in 2024, well below the national average of 3.5%, supporting the case for a continued, normalized level of rental growth in our markets. Almost half of our properties are located along the Jersey City waterfront, with very limited supply as virtually no new projects were completed last year, and approximately 1,200 units expected to be completed within the next two years. Demand remains robust and vacancy rates are low, suggesting new supplies likely to be absorbed much in the same way it has been during the past decade, in which the multifamily stock in Jersey City waterfront has doubled to around 24,000 units, while rents have continued to rise. Among the key attractions of Jersey City is the fact that Class A rents in the area reflect a discount of approximately 40% of top Manhattan submarkets and 10% of those of downtown Brooklyn, while offering generally newer product, more space, and a wider selection of amenities. As a result, Jersey City remains an appealing submarket for prospective tenants from Manhattan, who represented approximately 20% of our move-ins during the fourth quarter. While the fundamentals across our core markets remain strong, we are in an environment of elevated macroeconomic and capital markets uncertainty, which coupled with a moderating leasing environment, warrants a degree of caution looking ahead. This is reflected in our 2024 guidance, which Amanda will discuss later. Turning to operational results, the fourth quarter of 2023 represents the 10th consecutive quarter during which various generated sector-leading operating results, driven by strong rental growth and effective expense mitigation measures. Our Class A multifamily portfolio continued to outperform, achieving 17.6% year-over-year NOI growth, exceeding the high end of our guidance range, despite the widespread slowdown across the multifamily sector. At year-end, same-store occupancy stood at 94.4%. We continue to achieve favorable leasing and renewal spreads, despite the fourth quarter typically being a slower leasing season and rents now lapping two consecutive years of high growth. Blended same-store net rental growth remained strong at 5% for the quarter and 9.3% for the full year, driven by an 8.4% increase in renewal rates, partially offset by modest growth in new leases. While the rate of rental growth in the portfolio moderated during the fourth quarter, consistent with our commentary last quarter, it remained competitive relative to our peers, who saw an average blended rent growth of around 0.9% during the same period. Our Jersey City waterfront properties continue to outperform, achieving 7.6% rental growth in the fourth quarter and 11% for the full year. Despite the strong rental growth across our portfolio, affordability remained healthy with an average rental income ratio of 13%, reflecting the profile of our affluent residents who have benefited from growth in their salaries and have an average annual income of over $180,000 or an average annual household income of over $300,000. Our focus on realizing operational efficiencies is evident in our NOI margin, which further improved to 64% in 2023, up from 62% in 2022 and 57% in 2021 on a normalized basis, reflecting our continued focus on expense management and proactive approach to insurance renewals and tax appeals. We remain highly focused on our pursuit of excellence and the creation of value for all of our stakeholders. Consistent with this, We've introduced a number of innovative technological solutions across our portfolio, including an AI-based leasing assistant that has proven particularly effective at communicating directly with residents, saving approximately 1,200 staff hours per month, while allowing us to tend to our residents' needs around the clock. In addition to a number of centralized back-office functions, we also implemented new processes and a new hybrid-style floating leasing team and a smart maintenance platform that we anticipate will allow for further operational efficiencies and enhanced productivity across our portfolio without impacting the exceptional customer service that our residents have come to expect. A number of these initiatives were implemented during the fourth quarter and are expected to positively contribute to our NOI and operating margins over time. As part of our ongoing commitment to providing an unrivaled living experience, last year we launched the Veris Promise, an extensive collection of unique resident benefits, including a 30-day move-in guarantee, 24-hour maintenance guarantee, and promotions from brand partners, among other programs, an initiative that's been well-received by our residents and is unrivaled among peers. Our commitment to excellence is further reflected in our Peer-Leading Online Reputation Assessment, or AURA, score of 83. with two of our properties recently achieving elite 1% status. Earlier, I mentioned capital allocation as a focus area in this next phase. While our transformation is behind us, as a company, we're not yet in a mature, optimized state, presenting a number of unique opportunities. Earlier this year, we closed an additional $40 million of non-strategic sales, including the sale of a land parcel in suburban New Jersey for $10 million, and the sale of our 50% stake in the Metropolitan Lofts joint venture in Morristown, New Jersey. The 59-unit property was sold for $31 million, representing a 4% cap rate and releasing $6 million in net proceeds. Further, at the end of January, the company signed a binding purchase and sale agreement to dispose of our last remaining office property, Harborside 5, for $85 million, anticipated to release approximately $80 million in net proceeds. including this asset we have approximately 140 million dollars of assets on the binding contract at this time the equity release from these cells will provide us with valuable liquidity and optionality during this next phase in the company's evolution we also have a further 215 million dollars of equity in our land bank and are in the process of determining our long-term strategic sites and potential further monetization opportunities We will continue to work closely with the board to determine the highest and best use for capital as it becomes available to us, evaluating a broad range of capital allocation alternatives as we seek to maximize value for our shareholders. This includes, but is not limited to, investing in our own portfolio, such as our planned extensive renovation of Liberty Towers, a 648-unit apartment building in Jersey City, from which, once completed, we anticipate the mid- to high-teens return on invested capital over a four-year period. and an estimated $0.06 of annual core FFO contribution, representing 11% of our 2023 core FFO from this single investment of approximately $30 million, while significantly enhancing the value of the asset. Our third area of focus, the continuous strengthening of our balance sheet, will be discussed by Amanda in more detail. Finally, turning to our commitment to ESG, we are pleased with the recent additions to our collection of industry awards, which recognize our tremendous progress and the commitment of our employees and residents to our core ESG principles. After earning global and regional recognitions from the 2023 Global Real Estate Sustainability Benchmark, or GRESP, last quarter, we are honored to have subsequently received NAWIC's Leader in the Light Award for outstanding sustainability efforts in the residential sector. Our commitment to diversity, equity, and inclusion was also acknowledged by Nareed with their bronze recognition. To start the year, we were honored to receive the Great Place to Work certification for the third consecutive year, a testament to our strong company culture and highly engaged employees, whom I would like to thank for their tireless efforts and contributions in the pursuit of excellence across our business. With that, I'm going to hand it over to Amanda, who will discuss our financial performance and guidance for 2024.