Q4 2021 Veris Residential Inc Earnings Call

February 24, 2022

[music].

Please standby we're about to begin.

Good day, everyone and welcome to the first residential fourth quarter 2021 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 reasonable assumptions, we cannot give assurance that his.

Fifth grade results will be achieved.

We refer you to the company's press release annual and quarterly reports filed with the SEC.

Risk factors that impact the company was that.

I will now hand, the call over to my button ear Vice President.

Oh I'm, sorry, there's residential Chief Executive Officer. Please go ahead.

Good morning, and welcome to our fourth quarter 2021 earnings call I'm pleased to be joined by Amanda alone, Bob Our Chief Accounting Officer, Joe I'd like to welcome to the team.

Amanda will be assuming the role of Chief Financial Officer on April fast taking over from Davidson.

Well I'd like to thank for his unwavering commitment and contributions to the company during the past four years.

2021 was a transformative year for our company as we made significant progress in simplifying and refocusing the portfolio strengthening our balance sheet and further enhancing our multifamily operational platform.

We continue to execute on initiatives aligned with our strategic objective of being an environmentally and socially conscious transparent and forward thinking pure play multifamily REIT as evidenced by our renewed ethos and corporate values as various residential which began with the reconstitution of our board in the summer of 2020.

We enter 2022 from a position of strength with a number of non strategic asset sales that we anticipate will generate significant additional liquidity and provide even more optionality for the company throughout the course of the year.

The operating fundamentals across our 6691 unit multifamily portfolio. Once again showed strong momentum during the quarter.

The portfolio was 96, 6% occupied as of year end head of pre pandemic levels.

During the past year, we tapered concessions and realize the rental growth rate for new leases at 13, 9% and renewal leases at 11, 6% on a net basis during the fourth quarter.

The same store 5499 unit operating portfolio was 96, 4% occupied as of year end up from 86, 9% in December 2020, and two 8% above pre pandemic levels driving sequential same store revenue and net operating income growth of three 4% and 7%.

Respectively.

During 2021, we launched three lease up properties comprised of 866 units all of which stabilized during the year well ahead of our internal expectations, the leasing velocity and rent levels achieved.

In fact by year end occupancy capstone important <unk>, which received LEED silver certification in early 2022, and the upturn in short hills, both exceeded 99%.

And the further step to continue strengthening our operational platform. We made a decision to terminate our third party management activities effective December 31, 2021. This will free up valuable resources that we will allocate to managing our own assets, including <unk> 25.

We believe our cost say multifamily portfolio that offers unique living environments that align with our residents lifestyles and values is poised to continue to benefit from a favorable macroeconomic backdrop, including continued job and wage growth declining home purchase affordability and the anticipation of a wider return to office.

Turning to our dispositions since commencing our suburban office disposition program at the end of 2019, we've completed over $1 billion of sales across 36 assets, including approximately $741 million sold during 2021.

Proceeds generated from these sales were used to repay corporate bonds reduce overall indebtedness and further strengthen our balance sheet.

In January 2022, we completed the disposal of 111 River Street in Hoboken for $210 million and have another office property in Jersey City currently under contract for $380 million.

As a result, our multifamily portfolio represented 56% of our net operating income at the end of 2021 up from 38% in the prior year.

We expect this level to rise to around 71% when adjusted for the aforementioned office sales and a full quarter's contribution from recently stabilized lease up properties all else held constant.

Additionally to further simplify the business and recycle capital we progress in monetizing select land parcels. We currently have six land parcels with a total value of $155 million under binding contracts.

As we look to our office portfolio the waterfront assets was 72% leased at year end.

During the course of 2021, we signed 181500 square feet of leases comprised of 85500 square feet of new leases and 96000 square feet of lease renewals and expansions.

January 2022, we executed a new 15 year 130400 square foot lease with collectors universe at <unk> III.

Collectors universe workplace Mfg, who were not on occupation of that full space.

We negotiated the surrender of 100 300 square feet of air lease with a corresponding early termination fee to facilitate this new lease.

The new lease with collectors universe is value enhancing as it captures an increase in term to $16 five years up from eight years with the rent per square foot of just under $42, while improving the occupancy and overall weighted average lease term at the property.

While the pace of a center office remains subdued during the fourth quarter due to <unk>, we anticipate a more widespread return to office. During 2022, we continue to believe that harbor sites live work play proposition coupled with the incentives offered through Jersey city's emerge program will appeal to a wide cross section of office tenants as.

Validated by the recently executed collectors universe lease.

As noted earlier various residential is much more than a name change.

Is a culmination of our efforts over the past 18 months, we have environmental and social considerations into the fabric of the company.

Considerations that will inform our future decision, making as we seek to continue to maximize long term shareholder value as a responsible and transparent company.

So that and we have already made significant progress on reducing the environmental impact of our portfolio and operations and strengthening our commitment to diversity throughout endorsement of global initiatives, including the CEO action for diversity <unk> inclusion pledge the UN women's empowerment principles and the climate group's EV 100 initiatives. In fact, we were pleased to report.

We were the first real estate company in the U S to become a member of EV 100, joining a diverse group of Blue chip institutions and are committed to rolling out electric vehicle charging points across our properties by 2030.

Furthermore, as of year end, 25% of our wholly owned multifamily properties will lead certified.

100% of them received a world health and safety certification in the fourth quarter, demonstrating our commitment to the environment as well as the health and wellbeing of our employees and residents.

Overall 2021 marked a year of tremendous progress for our company with strong operating results in a number of strategic milestones achieved were.

Cited for what lies ahead and remain well positioned to continue executing on our transformation plan during 2022.

With that I'm going to hand, it over to Amanda who will update you on our financial performance during the quarter.

Thank you Bob before I begin I'd, just like to say that I'm very pleased to be joining the various residential team at such a pivotal point in this transition and look forward to being a part of the next chapter.

For the fourth quarter, we reported a net loss available to common shareholders of 33 cents per share.

<unk> per share of 17 cents.

For the year, our 2021 core <unk> with XT eight.

As compared to $1 seven for 2020.

The year over year reduction in core <unk> was primarily due to the impact of our ongoing suburban office disposition program.

Partially offset by increases in our multifamily NOI and a reduction in interest expense.

Quarter over quarter.

<unk> per share was flat as disposition activity was muted during the period.

As Robert mentioned, our multifamily operations continued to be strong our occupancy exceeded pre pandemic levels, which together with lower concessions was the main driver behind three 4% revenue growth on a sequential same store basis.

Sequential same store NOI is up slightly more at 7% primarily due to a onetime reduction in real estate taxes in the fourth quarter.

Same store NOI was up 21% for the fourth quarter of 2021 as compared to the same period in 2020.

This increase was also driven primarily by higher occupancy as a result of the general recovery from the pandemic.

And to a lesser extent from completing unit renovations at two of our stabilized properties.

Excluding the impact of the $800000 of real estate tax catch up payments in the fourth quarter of 2020.

The fourth quarter 2021, same store NOI increased by 16, 2% year over year.

Across the portfolio net effective rents were still behind last year's rents due to higher concessions and our new Jersey waterfront assets, which we expect to burn off by the third quarter of 2022.

As we move forward, we should continue to benefit from renewing our leases at market rents, which can already be observed in our positive net effective rent growth rates mentioned by Matt earlier.

Total NOI contributed by our multifamily operations increased due to the stabilization of three development projects in the fourth quarter of 2021.

All ahead of our expectations.

These properties located in Weehawken, and West New York and short Hills.

Along with the Emery in Massachusetts, which was stabilized in Q1.

Contributed NOI of $4 million for the fourth quarter.

Given these three development projects stabilized during the quarter, we expect to see increased NOI contribution from these properties in upcoming quarters.

Turning to our office portfolio office leasing was modest in the quarter with only two leases signed for 5300 square feet.

However, as Mark mentioned after quarter end, we signed a lease with collectors universe and received a 25 million lease termination payment in our space from Amin ft.

I'd also like to point out that going forward, we will no longer report on same store NOI for the office portfolio.

Turning to the balance sheet during the quarter, we refinanced the two construction loan on the recently stabilized capstone important in parallel which is part of our unconsolidated JV in the afternoon short hills with permanent financing.

We took out an additional 22 million in proceeds and reduced the margin by 155 basis points and 75 basis points respectively.

We also purchased a cap on the Atkins alone.

Additionally in January we used the net proceeds from the sale of 111 river to reduce leverage repaying the $150 million mortgage and using the remaining proceeds to reduce the credit line.

Lastly on development are only multifamily development under construction right now is <unk> 25.

The total cost of approximately $470 million.

We have fully funded all of the equity in that project and are still expecting to meet our budget.

This concludes our prepared remarks, operator can we open the call for Q&A.

A question for you.

And if you'd like to ask a question. Please signal by pressing star one on your telephone keypad.

Please pickup your handset and make sure your mute function is turned off.

Ignore reaches our equipment.

And then star one if you'd like to ask a question.

And we'll go ahead and take our first question from Manny Korchman with Citi. Please go ahead.

Hey, good morning, everyone.

Amanda or Bob I think.

And as Martin said Youre not going to offer same store NOI stats for the office portfolio any longer.

What's driving that decision lending offices.

Significant part of your portfolio is that just a matter of.

Interfering with plans to sell it as that.

Something else that you would cut back that information.

Hi, Matt.

Marvell here the decision was really based on the fact that now with the <unk>.

Expectation of what was a sale of 111 river and the expectation of the sale of our other office asset Thats under contract.

What remains is actually relatively small.

As a percentage of the overall portfolio.

<unk> run about 30% and I've been pretty clear that that's not really.

Strategic to the business long term going forward. So that was really the rationale behind that decision.

And maybe following on that what is the timing to the exit of non strategic position is it something we should think about it.

<unk> 22, or 23% and realizing that it depends on the transaction market a few health care.

Your dream come true.

When would you be out of that office.

Yes, it's a great question.

But I've been I've been in the seat for a year now.

And I've been pretty clear from the beginning that we're going to be.

<unk> about this transition.

Regarding but we're also going to be.

Measured and balanced in the decisions that we've made so no plans to sell anything just because thats the easiest thing to do.

We will.

Do it in a measured and balanced way at the right time or do you expect this year to be a year of transition for us but.

But I wouldn't want to put a timeframe on when any further asset sales.

Okay. Thanks, and then on that day.

Realizing that.

Welcome to the seat, but as you think about the.

Funding plans.

Going forward.

Where does the capital come from I guess some of it will come hopefully.

So.

But with our stock price is still a challenge.

How do you call on the multifamily growth going forward.

If you don't mind I'm going to take that one.

I think we Havent got Simon good afternoon.

No no no.

I think youre really talking about the recycling of capital and.

At this point in time, not expected, but we wouldn't be looking to raise fresh capital thats really about recycling.

And as and when capital frees up.

So as we approach closing on the current transactions and potentially future transactions.

And we have that catheter in sight, we will be working with the board.

Having the highest and best use for that capital, but certainly at this point.

The plan is very much to organically recycle capital through a higher and better use within the company.

Thanks, everyone.

Thanks Brendan.

And we will go ahead and move on to our next question from Brian <unk> with Evercore ISI. Please go ahead.

Hey, good morning.

Obviously, the office leasing has been muted the past couple of quarters.

So what do you attribute that slowdown too and I guess, how focused are you on leasing up the waterfront waterfront at this point just given the office leasing has been sluggish and yet transaction pricing seems okay. So I'm just trying to get a sense of priorities, there and kind of the timeline of pivoting towards a pure play multifamily.

Good morning, Brian .

I think all good questions.

In terms of.

Muted pipeline certainly fourth quarter was somewhat muted with attribute that to.

<unk>, but.

There are also some positive signs.

On both sides of the river.

On the waterfront, we had 197000 square foot of leasing.

Done.

<unk> was above the five year average for the fourth quarter across the river in Manhattan, as well as four consecutive months running into December .

Two 5 million square foot plus of leasing.

There are some interesting anecdote for.

That's out there that you can see the number of tenants in the market looking for 50000 plus square foot for example in Manhattan is.

Round about 70% of the level pre COVID-19 .

So there are more tenants looking theyre looking for high quality space generally is that most of that leasing that I mentioned across the river has really been 75% of it has been in.

Higher quality.

Building, new buildings, Redeveloped buildings, but more sort of true cost say buildings, which should bode well for us given that's what we own here at half the cost.

So some really positive signs.

Again going back to the waterfront in the first quarter, whereas the collectors universe lease and.

Couple of other leases that we're aware of signed were.

We understand imminently to be signed on the waterfront, we could be matching that.

Very close to that full year 'twenty, one number of 400000 square foot signed on the waterfront in the first quarter. So.

I think some positive signs.

And in terms of our commitments.

Continuing to lease.

Waterfront.

Absolutely and I think the collected universities demonstrates that.

We are highly committed to continuing to this on the waterfront we own these assets until we don't.

And we will continue to manage operate and lease them with a geo care and attention that we always have.

Okay.

Because.

It seems like if you were to sell the assets.

As is wouldn't be terribly dilutive to then redeploy that capital into stabilized apartments assuming.

Somewhat similar pricing to what you've seen so.

So I guess the question at that point becomes if and when you do sell the assets.

How are you balancing how would you balance that growth do you think you'd favor.

Stabilized acquisitions or would.

Would you rather try to wait and get a better yield on that growth developments.

Well I think thats actually a balance as well.

And as I said I think.

It doesn't have to be a single use of capital for.

For us, but we.

We went ourselves too so it can be a combination and ultimately it will be a case of.

Evaluating what is available for recycling and what the highest and best use of that asset that can be multiple uses to your point and I think that is most likely the way we will look at it but thats a discussion.

To be had with the board.

And if I answer the first part of your question, if I misunderstood I apologize, but.

I think my comment about leasing was we continue to own these assets and we will continue to focus on leasing them and I'm optimistic that.

With the return to office and some of the Green shoots that we're seeing in tenant activity, we're very well positioned better than we had been for a long time to capture some more of that DC.

But that doesn't conflict with our strategic.

Objectives.

To conclude this transformation.

Sure.

And I've said this from the beginning from a year ago, we're not wedded to.

<unk>.

Occupancy number.

Or anything like that will be pragmatic, but balanced and measured when it comes to evaluating strategic options for the Hopper side office complex.

Okay, great. Thank you.

Thank you Brian .

And again.

One if you'd like to ask a question and we will go ahead and move on to <unk> question, Jamie Feldman with Bank of America. Please go ahead.

Great. Thank you and good morning, I just wanted to get your thoughts on the land sales during the quarter. How are you thinking about maintaining our land bank for future.

Residential development and how do those land sales.

Lineup with that strategy.

Good morning, Jamie So we talked about recycling capital.

Rebalancing.

The allocation of equity.

Throughout the company.

One thing that was clear to us is that we.

We had a disproportionate large non bank for company.

Of our size.

In theory, you could develop out.

8000 units, but in reality, that's a very long slow not all of that land is entitled and ready to go and actually much of it isn't and would take several years to get to that stage. So for the time being.

Ends up being an inefficient.

Use of capital, it's a drag on earnings and if we were to develop that in many cases, they would actually just add concentration risk.

The existing assets and potential risk of cannibalizing our own assets and so that was really just a rebalance and recycle.

To some extent away from.

That existing land bank.

But as I mentioned earlier, the use of capital could be.

Towards multiple.

Different redeployment.

Options and so I wouldn't rule out.

Potential future development, we haven't announced the development staff and we're not announcing one today, but that is certainly one option.

There's a long history of successful development.

On a DNA that run through the company.

That is valuable to us.

And it's certainly an option that we will explore in the future.

Okay.

Can you talk more about the buyers I mean can it be.

Maybe you don't want the concentration risk or the cannibalization, but are any of these buyers potentially building competitive supply.

Well the use of the land will be to build multifamily units.

Wide range of buyers.

So I think.

We want to get into that level of detail on that but yes, we use will be multifamily will it be a comparable product to what we build I don't believe so I believe we have the.

The highest quality assets with the best amenity offering.

That attract the highest rent points in the market.

The question for US is really should we continue to develop that and if so where should we develop more of a product.

But as I said, it's not a priority at this point.

I would feel like before.

Okay. Thank you.

Then.

Can you talk about the termination fee and how that's going to flow through earnings.

Hello.

Hi, This is Amanda yes.

So.

<unk> basis, we will expect to recognize roughly $22 million for the termination fee and we will be deducting that from our core SSO.

And that'll be in <unk> 'twenty two.

Yes exactly.

Okay.

Alright, Thank you I appreciate it.

Okay.

Thank you Jamie.

Again, it is Taiwan, maybe you'd like to ask a question and we'll move on to our next question from Tom Catherwood with BTG. Please go ahead.

Thank you and good morning, everyone kind of following up on the capital allocation questions. Bob I understand your comments about working with the board on deciding multiple options. When we think of timelines you've already paid off the secured line of credit so near term sales should provide growth capital.

Have you already started capital allocation discussions with the board and is your expectation that you'll have a strategic direction a quarter from now or could it be more of a second half item.

Hi, good morning.

<unk>.

So I think maybe just starting at the beginning that we do still have an outstanding balance on the line.

We did use the proceeds from 111 river to pay down the line.

So the proceeds which were just under $50 million you could say from that particular transaction, we determine the highest and best used to be repayment of debt.

As for the future with that closing schedule attached.

A number of these and it varies across the different sales that we've announced.

Really a case of looking at that schedule in the context of the discussions that we.

We will be having with the board.

The terminal at that highest and best uses.

They are not capital.

Update you obviously.

But im not giving more guidance on that today I'm afraid.

Understood and just kind of thing where don't want to have to every time, we talk bring up the same thing if the thought is that it's most likely a later 'twenty two event or if it's an imminent event. So if you want to touch on anything but any sense of is it three months six months nine months youre prepared to put any kind of thought.

On when you might have a little bit more kind of definitive direction.

Well I guess, a slightly different way to answer that is my expectation would be that.

The majority of what we've announced today.

Could close in the first half of the year.

And so we'll be.

That's probably about as much like <unk>.

But look I think the timing is going to be and I appreciate you need to.

Model this out but I think timing is a consideration but use of capitals wholesale going to determine the outcome of.

Youll protections.

Has it been determined diverse.

What I would.

And maybe.

Appropriate comment to make at this point.

The numbers I think are just going to be influx. This year they are going to be.

All over the place.

Not uncommon for a company that's undergoing a pretty significant transformation.

Like calls so I think this year is really more about achieving milestones moving forward with the transformation plan.

There is going to be.

Noise and distortion in the numbers given the number of variables.

Taylor.

Got it appreciate it Bob.

Then on the land bank it looks like.

Kind of pulled out some of the units on the potential developments. It looks like it was port side, one four in east Boston and maybe the option land at Liberty landing.

Were those did you decide not to pursue the option land did just sell some of this what was the what was the how did you end up kind of with a less developed units this quarter.

Yes, that's a great question.

It was it was simply the determination.

It wasn't feasible to proceed with those divestments.

And also there's a carrying cost to maintaining.

The option to develop and so we made the decision to have those back in the market.

Got it appreciate that and last one for me.

On third party management to the termination of that kind of two parter. First is is there any kind of feed drag in 'twenty, two or kind of what's the scope of the fee drag you're expecting from that this year and then second.

In general we keep hearing about expense growth impacting management operations, especially on the residential side.

The expectations for how that might flow through this year.

Yes, again, both really good questions.

First one.

Hi.

Elimination of the third party management.

Business.

Can you explain the rationale behind that but we want to we are very focused on creating a best in class platform to sit above best in class assets in the multifamily sector.

And so we want to focus the resources that we have to be managing our own assets and continuing to enhance and build out that platform.

The gross revenue loss.

From that is about <unk> <unk> per year, but obviously the cost associated with that.

Management, unless you do it insignificant volume is not a very.

Profitable.

Mrs.

And then in terms of the overall cost pressures, which we're seeing absolute costs highlighted market.

I think we've done a good job of managing expenses and if you recall last year, we announced.

Through a series of measures to streamline.

Our operations run more efficiently, which is an ongoing initiative.

We remain on track despite those pressures.

To still deliver on our $5 million of run rate cash expense savings this year.

Got it I appreciate the answers thanks, everyone.

Thank you very much for the questions.

And we'll move on to your next question with Michael Lewis with <unk> Securities. Please go ahead.

Great. Thank you.

Just following up on a previous question about the board and the strategy you could correct me if I'm wrong I don't remember.

Formal end to the to the formal strategic review.

Okay.

Is it fair to say now the strategy is that or is there still kind of.

Is there still a review going on and is that kind of a process thats incurring any any cost still are.

Or are we on that.

No. The strategic review committee is still very much intact and very much focused on.

Creating maximizing value for shareholders.

That is wholly independent from what we're doing as a management team.

We're doing as a management team is creating entity value.

Through the steps that we've taken over the last year.

We've got a clear strategic direction will go to more focused business, we've got a more stable and cleaner balance sheet more efficient more effective operating platform and we.

A more valuable business as a result of all of that so thats, our focus as a management team to continue.

Creating entity value on the strategic review Committee.

Has been and will continue to evaluate.

Paul any and all options available to it to maximize value for shareholders.

Okay.

It's kind of like an ongoing rate the door is always open.

Anyway, I don't know if that sounds like a separate formal strategic review, but.

Anyway my.

Second question I wanted to ask about.

I know youre not going to be.

Reporting the same store NOI on the office anymore.

I understand.

Could you just kind of point us to which direction is.

The kind of occupancy and the revenue in that in that business going before asset sales right. So kind of steady state portfolio and I asked that because I know you have vantage is a big lease expiring in 2023 I think amtrust.

Is expiring in the near term.

Is the risk of that occupancy going going down while you are looking for a for a buyer of those assets.

Yes, so we don't have.

We don't have much rolling this year is only around 85000 square foot Thats rolling this year.

Your question about Directionally, which way that's going.

Obviously, we've just signed.

A new lease with collectors universe set in terms of net basis 30000 square foot on that space, but its a significantly longer time.

16 years.

So this is ran about eight that we had so that's a value enhancing and it's an encouraging sign I go back to my comments about where we believe the market potentially may be going.

Tenant demand may be going and I think that's going to be really the biggest potential value driver going forward for this year is going to be.

You can do more leasing and grow the top line, but in terms of rollover, there's really very little this year.

Okay, how about the ones next year that I mentioned tonnage and Amtrust and any others. I think there is you're right very little rollover in this year I think next year is a bigger rollout for a year of 2014 or 15% of the portfolio.

Yes, and then next year, we obviously have.

Bit more than we do this year.

From memory, I think it's around 12% or so of the space.

Actively.

<unk> engaged in dialogue with our tenants.

Two.

To retain them, we've invested a lot in harborside.

Two thirds of the renewals lawsuits two thirds of the leasing last year and the portfolio was renewals will continue to adopt that approach with future.

Yes.

He says that.

<unk> expiry, and we will continue to focus.

On attracting new tenants like collectors universe to the great proposition that how the site offerings.

Okay, and then just lastly for me.

You mentioned.

Not really raising new capital that kind of recycling capital.

You did establish an ATM program.

In December .

I was just curious.

Is that just to have.

An arrow in your quiver kind of adjusting case or for whenever the stock price gets.

So where do you think it's appropriate.

There is no intention I assume.

Utilizing that anytime soon thats not in your capital plan.

That's absolutely correct I think it's just we felt it's prudent for a company.

To have one.

That is why we put it in place, but there is no intention to use that in the near term.

Okay, great. Thank you very much.

Thank you very much.

And we'll go ahead and take a follow up from Citi. Please go ahead.

Hi.

Thanks for that Robert.

Robert.

Use of the collectors universe space or is that going to be fully office space from.

They are released in early so it seems like part of that is going to be what they call.

Our grading operations, just wondering how much of that sort of what we would call traditional office versus something that's going to look different than that.

Yes, it's substantially traditional office.

I can give you the exact breakout.

Traditional office.

Would be an element of obviously fixing it out for that specific.

Use over the course of the next year or so but it will be.

Nominally traditional office.

And then just if we think about.

And you have two situations, if we think about other significantly underused space.

And then harborside portfolio.

How much of that type curve.

Dark space or.

Space or whatever you want to call. It is there.

You could see another tenant other procure you approach them to flip that space.

But.

In terms of the dock space, there really isn't much I mean, you'll know where the vacancy is.

I'll decide one six.

Five.

Right floor than five.

Now in terms of the dock space.

There really isn't any other space that I can think of this as a creative solution.

To be able to allow us tenants you want it to be in this building specific fee to be able to occupy it.

Some of that space back getting a robust premium.

Payment from the tenants.

And really creating a win win the three parties, but it was there isn't really.

If there is more of that space.

Really de Minimis, there isn't any more of that and how the site.

And then one last one on the collectors universe space.

Just what are the upfront lease economics look like there in terms of.

Ti is it prevents in build out costs and maybe if you could read that again.

Karen.

Youre getting a check in and you have to keep and how much of that check is giving sort of just put right back out the cartridges and Chris.

That's a great question. So the rent the headline math was right on.

Literally a touch on the $42.

<unk>.

At market I'd say on the low end of market so roundabout.

$5 a square foot.

Landlord contribution.

$3 million.

That will put forward. So there is still a meaningful portion of.

The robust premiums that we got that.

That remains after that.

Thanks, Bob.

Thank you very much.

And with that that does conclude our question answer session for today I would now like to turn the call back over to Mark <unk> for any additional or closing remarks. Please go ahead.

Thank you everyone for joining us today.

It's Ben.

An eventful and transformative year, and we look forward to updating you on our future progress in the coming quarters.

And with that that does conclude today's call. Thank you for your participation you may now disconnect.

Yeah.

Sure.

[music].

Yeah.

[music].

Good day, everyone and welcome to the various residential fourth quarter 2021 earnings conference call.

Today's call is being recorded.

Typically the results will be achieved.

We refer you to the company's press release annual and quarterly reports filed with the S E T.

Risk factors that impact the company with that I will now hand, the call over to my partner Vice President.

Oh I'm, sorry, there's residential Chief Executive Officer. Please go ahead.

Good morning, and welcome to our fourth quarter 2021 earnings call I'm pleased to be joined by Amanda Longboard, Our Chief Accounting Officer, who I'd like to welcome to the team.

Amanda will be assuming the role of Chief Financial Officer on April fast taking over from Davidson.

I would like to thank for his unwavering commitment and contributions to the company during the past four years.

The operating fundamentals across our 6691 unit multifamily portfolio. Once again showed strong momentum during the quarter.

Portfolio was 96, 6% occupied as of year end at a pre pandemic levels.

During the past year, we tapered concessions and realize the rental growth rate for new leases at 13, 9% and renewal leases at 11, 6% on a net basis during the fourth quarter.

Prospectively.

During 2021, we launched three lease up properties comprised of 866 units all of which stabilized during the year well ahead of our internal expectations for leasing velocity and rent levels achieved.

In fact by year end occupancy at the Capstone important <unk>, which received LEED silver certification in early 2022, and the upturn in short hills, both exceeded 99%.

And a further step to continue strengthening our operational platform. We made a decision to terminate our third party management activities effective December 31, 2021. This will free up valuable resources that we will allocate to managing our own assets, including <unk> 25.

We believe our cost save multifamily portfolio that offers unique living environments that align with our residents lifestyles and values is poised to continue to benefit from a favorable macroeconomic backdrop, including continued job and wage growth declining home purchase affordability and the anticipation of a wider return to office.

This leads generated from these sales were used to repay corporate bonds reduce overall indebtedness and further strengthen our balance sheet.

In January 2022, we completed the disposal of 111 River Street in Hoboken for $210 million and have another office property in Jersey City currently under contract for $380 million.

As a result, our multifamily portfolio represented 56% of our net operating income at the end of 2021 up from 38% in the prior year.

We expect this level to rise to around 71% when adjusted for the aforementioned office sales and a full quarter's contribution from recently stabilized lease up properties all else held constant.

Additionally to further simplify the business and recycle capital we progress monetizing select land parcels. We currently have six land parcels with a total value of $155 million under binding contracts.

As we look to office portfolio, the waterfront assets was 72% leased at year end.

During the quarter of 2021, we signed 181500 square feet of leases comprised of 85500 square feet of new leases and 96000 square feet of lease renewals and expansions.

In January 2022, we executed a new 15 year 130400 square foot lease with collectors universe at Harbor site III.

Collectors universe workplace Mfg, who were not on occupation of that full space.

We negotiated the surrender of 100 300 square feet of air lease with a corresponding early termination fee to facilitate this new lease.

The new lease with collectors universe is value enhancing that captures an increase in time to $16 five years up from eight years with the rent per square foot of just under $42, while improving the occupancy and overall weighted average lease term at the property.

While the pace of a center office remains subdued during the fourth quarter due to <unk>, we anticipate a more widespread return to office. During 2022, we continue to believe that harbour sites live work play proposition coupled with the incentives offered through Jersey city's emerge program will appeal to a wide cross section of office tenants.

Validated by the recently executed collectors universe lease.

As noted earlier various residential is much more than a name change.

Is a culmination of our efforts over the past 18 months, we have environmental and social considerations into the fabric of the company.

Considerations that will inform our future decision, making as we seek to continue to maximize long term shareholder value as a responsible and transparent company.

To that end, we have already made significant progress on reducing the environmental impact of our portfolio and operations and strengthening our commitment to diversity throughout doses of global initiatives and creating the CEO action for diversity <unk> inclusion pledge the UN women's empowerment principles and the climate group's EV 100 initiatives. In fact, we were pleased to report.

We were the first real estate company in the U S to become a member of <unk> 100, joining a diverse group of Blue chip institutions and are committed to rolling out electric vehicle charging points across our properties by 2030.

Furthermore, as of year end, 25% of our wholly owned multifamily properties, where LEED certified.

And 100% of them received a well health and safety certification in the fourth quarter, demonstrating our commitment to the environment as well as the health and wellbeing of our employees and residents.

Overall 2021 marked a year of tremendous progress for our company with strong operating results in a number of strategic milestones achieved we're excited for what lies ahead and remain well positioned to continue executing on our transformation plan during 2022.

With that I'm going to hand, it over to Amanda who will update you on our financial performance during the quarter.

Thank you Rob before I begin I'd, just like to say that I'm very pleased to be joining the various residential team at such a pivotal point in this transition and look forward to being a part of the next chapter.

For the fourth quarter, we reported a net loss available to common shareholders of <unk> 33 per share and.

Core <unk> per share of <unk> 17.

For the year, our 2021 core <unk> was <unk> 68.

As compared to $1 seven for 2020.

The year over year reduction in core <unk> was primarily due to the impact of our ongoing suburban office disposition program and was partially offset by increases in our multifamily NOI and a reduction in interest expense.

Quarter over quarter <unk> per share was flat as disposition activity was muted during the period.

As Robert mentioned, our multifamily operations continued to be strong our occupancy exceeded pre pandemic levels, which together with lower concessions was the main driver behind the three 4% revenue growth on a sequential same store basis.

Sequential same store NOI is up slightly more at 7% primarily due to a onetime reduction in real estate taxes in the fourth quarter.

Same store NOI was up 21% for the fourth quarter of 2021 as compared to the same period in 2020.

This increase was also driven primarily by higher occupancy as a result of the general recovery from the pandemic.

And to a lesser extent from completing unit renovations at two of our stabilized properties.

Excluding the impact of $800000.

Our real estate tax catch up payments in the fourth quarter of 2020.

The fourth quarter 2021, same store NOI increased by 16, 2% year over year.

Across the portfolio net effective rents were still behind last year's rents due to higher concessions and our new Jersey waterfront assets, which we expect to burn off by the third quarter of 2022.

As we move forward, we should continue to benefit from renewing our leases at market rents, which can already be observed in our positive net effective rent growth rates mentioned by Matt earlier.

Total NOI contributed by our multifamily operations increased due to the stabilization of three development projects in the fourth quarter of 2021.

All ahead of our expectations.

These properties located in Weehawken, and West New York and short Hills.

Along with the Emery in Massachusetts, which was stabilized in Q1.

<unk> contributed NOI of 4 million for the fourth quarter.

Do you have any three development projects stabilized during the quarter, we expect to see increased NOI contribution from these properties and upcoming quarter.

Turning to our office portfolio office leasing was modest in the quarter with only two leases signed for 5300 square feet.

However, as Marvin mentioned after quarter end, we signed a lease with collectors universe and received a 25 million lease termination payment on this space from annual ft.

I'd also like to point out that going forward, we will no longer report on same store NOI for the office portfolio.

Turning to the balance sheet during the quarter, we refinanced the two construction loans on our recently stabilized capstone important in parallel which is part of our unconsolidated JV and the upturn in short hills with permanent financing.

We took on an additional 22 million in proceeds and reduced the margin by 155 basis points and 75 basis points respectively.

We also purchased a cap on the <unk> loan.

Additionally in January we used the net proceeds from the sale of 111 river to reduce leverage repaying the $150 million mortgage and using the remaining proceeds to reduce the credit line.

Lastly on development are only multifamily development under construction right now is <unk> 25.

The total cost of approximately $470 million.

We have fully funded all the equity in that project and are still expecting to meet our budget.

This concludes our prepared remarks, operator can we open the call for Q&A.

Of course, thank you.

If you'd like to ask a question. Please signal by pressing star one on your telephone keypad, if you're on speakerphone. Please pick up your handset and make sure. Your mute function is turned off so that's your signal reaches our equipment again star one if you'd like to ask a question.

And we'll go ahead and take our first question from Manny Korchman with Citi. Please go ahead.

Hey, good morning, everyone.

Amanda or Bob I think in the manager as Martin said Youre not going to offer same store NOI stats for the office portfolio any longer.

What's driving that decision lending offices.

<unk> part of your portfolio is that just a matter of.

Interfering with plans to sell or is that.

Something else that you would cut back that information.

Hi, Matt.

Marvell here the decision was really based on the fact that now with the.

Our expectation of lower the size of 111 River and the expectation of the sale of our other office asset Thats under contract.

What remains is actually relatively small.

As a percentage of the overall portfolio.

<unk> run about 30% and I've been pretty clear that that's not really.

Strategic to the business long term going forward. So that was really the rationale behind that decision.

And maybe following on that just what is the timing to exit non strategic position is it something we should think about in 'twenty.

<unk> 'twenty, two or 'twenty, three and realizing that it depends on the transaction market shows a few healthcare.

Yes, you are clean come true.

One would you be out of that office.

Yes, it's a great question.

But I've been I guess I've been in the seat for a year now.

And I've been pretty clear from the beginning that we're going to be.

<unk> about this transition.

But we're also going to be measured and balanced in the decisions that we've made so no plans to fire sell anything just because that's the easy thing to do.

<unk>.

Do it in a measured and balanced way at the right time do you expect this year to be a year of transition for us but.

But I wouldn't want to put a timeframe on when any further asset sales.

Okay. Thanks, and then.

Realizing that.

Got into the seat, but as you think about.

The funding plans.

Going forward.

Where does the capital come from I guess some of it will come hopefully if these assets do so.

But with our stock price is still a challenge.

How do you find the multifamily growth going forward.

If you don't mind I'm going to take that one so I think we have an undrawn for the company.

No no no.

So I think youre really talking about the recycling of capital and.

At this point in time, it's not expected that we wouldn't be looking to raise fresh capital thats really about recycling.

And as and when capital frees up.

So as we approach closing on the current transactions and potential future transactions and we have that capital in sight, we will be working with the board.

Having the highest and best use for that capital, but certainly at this point.

The plan is very much to organically recycle capital through a higher and better use within the company.

Thanks, everyone.

Thanks, Jonathan.

And we will go ahead and move on to our next question from Brian <unk> with Evercore ISI. Please go ahead.

Hey, good morning.

Obviously, the office leasing has been muted the past couple of quarters.

So what do you attribute that slowdown too and I guess, how focused are you on leasing up the waterfront waterfront at this point just given the office leasing has been sluggish and yet <unk>.

Transaction pricing seems okay. So I'm, just trying to get a sense of priorities, there and kind of the timeline of pivoting towards the pure play multifamily.

Good morning, Brian .

I think all good questions.

In terms of.

<unk> pipeline certainly fourth quarter was somewhat muted we would attribute that to.

But.

There are also some positive signs.

Really on both sides of the river.

On the waterfront, we had 197000 square foot of leasing.

Done which was above the five year average for the fourth quarter across the river in Manhattan, as well four consecutive months running into December of.

$2 5 million square foot plus of leasing.

And there are some interesting anecdotal.

That's out there that you can see the number of tenants in the market looking for 50000 plus square foot for example in Manhattan is.

Roundabout, 70% of the level pre COVID-19 .

So there are more tenants looking theyre looking for high quality space generally is that most of that leasing that I mentioned across the river has really been 75% of it has been.

Higher quality.

Building, new buildings, Redeveloped buildings, but more sort of true cost of our buildings, which should bode well for us given that's what we own here at half the cost.

So some really positive signs.

And going back to the waterfront in the first quarter, whereas the collectors universe lease and.

Although the other leases that we're aware of signed and we understand imminently to be signed on the waterfront, we could be matching that we're getting very close to that full year 'twenty, one number of 400000 square foot.

And on the waterfront in the first quarter so.

Some positive signs.

And in terms of our commitment to <unk>.

Continuing to lease the waterfront.

Absolutely and I think the collected universities.

Demonstrates that.

We are highly committed to continuing to this on the waterfront we own these assets until readout.

And we will continue to manage operate and lease them.

With the care and attention that we always have.

Okay.

Because.

It seems like if you were to sell the assets.

This wouldn't be terribly dilutive to then redeploy that capital into stabilized apartments, assuming.

Somewhat similar pricing to what you've seen.

So I guess the question at that point becomes if and when you do sell the assets.

How are you balancing how would you balance the growth do you think you'd favor.

Stabilized acquisitions or.

Would you rather try to wait and get a better yield on that growth developments.

Well I think that's actually a balance as well.

And as I said I think.

But it has to be a single use of capital for.

For us, but we.

Wed ourselves too so it can be a combination and ultimately it will be a case of.

<unk> had with the board.

I'll answer the first part of your question, if I misunderstood I apologize, but.

I think <unk>.

Comment about leasing was we continue to own these assets and we'll continue to focus on leasing them and im optimistic that.

With the return to office and some of the Green shoots that we're seeing in tenant activity, we're very well positioned better than what had been for a long time to capture some more of that leasing.

But that doesn't conflict with our strategic.

Objectives.

To conclude this transformation.

Sure.

And I've said this from the beginning from a year ago, we're not wedded to.

Thank you.

Occupancy number.

Or anything like that we'll be pragmatic.

Balanced and measured when it comes to evaluating strategic options for herbicide office complex.

Okay, great. Thank you.

Thank you Brian .

And again.

One if you'd like to ask a question and we will go ahead and move on to <unk> question, Jamie Feldman with Bank of America. Please go ahead.

Great. Thank you and good morning, I just wanted to get your thoughts on the land sales during the quarter. How are you thinking about maintaining a land bank for future residential development and how do those land sales.

Lineup with that strategy.

Good morning, Jamie So yeah, we've talked about recycling capital.

Rebalancing.

The allocation of equity.

Throughout the company.

I think one thing that was clear to us is that.

And we'd had a disproportionate large non bank for our company.

Of our <unk> and <unk>.

In theory, you could develop out.

8000 units, but in reality, that's a very long slow not all of that land is entitled and ready to go and actually much of it isn't and would take several years to get it to that stage so for the time being it.

Ends up being an inefficient.

Use of capital, it's a drag on earnings and if we were to develop that in many cases, it would actually just add concentration risk.

The existing assets and potential risk of cannibalizing our own assets and so that was really just the rebalance and recycle.

To some extent away from.

That existing land bank.

But as I mentioned earlier, the use of capital could be.

Towards multiple.

Different redeployment.

Options and so I wouldn't rule out.

Potential future development, we haven't announced the development staff and we're not announcing one today, but that is certainly one option.

<unk> long history of successful development.

On a DNA that run through the company.

That is valuable to us.

And it's certainly an option that we'll explore in the future.

Okay.

Could you talk more about the buyers I mean can it be.

You don't want the concentration risk or the cannibalization, but are any of these buyers potentially building competitive supply.

Well the use of the land will be to build multifamily units.

Wide range of buyers.

So I think we want to get into that level of detail on that but yes. We use will be multifamily will it be a comparable product to what rebuild I don't believe so I believe we have the <unk>.

Higher quality assets with the best amenity offering.

That attract the highest rent points in the market.

The question for US is really should we continue to develop that and if so why shouldn't we developed more of a product.

But as I said, it's not a priority at this point that would feel like filing before.

Okay. Thank you and then.

Can you talk about the termination fee and how that's going to flow through earnings.

Hello.

Hi, this is Amanda.

So on a GAAP basis, we will expect to recognize roughly $22 million for the termination fee and we will be deducting that from our core ethos.

And that'll be in <unk>.

Yes exactly.

Okay.

Alright, thank you.

I appreciate it.

Okay.

Thank you Jamie.

Again, it is Taiwan, maybe you'd like to ask a question and we'll move on to our next question from Tom Catherwood with <unk>. Please go ahead.

Thank you and good morning, everyone.

Kind of following up on the capital allocation questions, Bob I understand your comments about working with the board on deciding multiple options.

When we think of timelines you've already paid off the secured line of credit. So near term sales should provide growth capital have you already started the capital allocation discussions with the board and is your expectation that you'll have a strategic direction a quarter from now or could it be more of a second half item.

Hi, Good morning, Tom.

So I think maybe just starting at the beginning that we do still have an outstanding balance on the line.

We did use the proceeds from 111 river to pay down the line.

So the proceeds which were just under $50 million you could say from that particular transaction, we determine the highest and best used to be repayment of debt.

As for the feed show that the closing schedule attached.

A number of these and it varies across the different sales that we've announced so it's really a case of looking at that schedule in the context of the discussions that will.

We will be having with the board.

The terminal at that highest and best uses.

They are not capital.

Update you obviously.

But im not very evident to give you more guidance on that today I'm afraid.

Understood. Its just kind of thing where don't want to have to every time, we talk bring up the same thing if the thought is that it's most likely a later 'twenty two event or if it's an imminent event. So if you want to touch on anything but any sense of is it three months six months nine months youre prepared to put any kind of thought.

On when you might have a little bit more kind of definitive direction.

Well I guess, a slightly different way to answer that is my expectation would be that.

The majority of what we've announced today.

Could close in the first half of the year.

And so we'll be that's probably about as much like <unk>.

Look I think the timing is going to be and I appreciate you need to.

Model this out, but I think timing is a consideration.

So of capitals wholesale going to determine the outcome of.

Youll protections and that Hasnt been determined diverse.

What I would.

And maybe sort of.

An appropriate comment to make at this point.

The numbers I think are just going to be influx. This year they are going to be good all over the place.

Not uncommon for a company that's undergoing a pretty significant transformation.

Like calls so I think this year is really more about achieving milestones moving forward with the transformation plan fortinet is going to be.

Noise and distortion in the numbers given the number of variables that entails.

Got it appreciate it Bob.

Then on the land bank it looks like.

Kind of pulled out some of the units on the potential developments it looks like it was.

Port side, one four in east Boston, and maybe the option land at Liberty landing.

Were those did you decide not to pursue the option land did just sell some of this what was the what was the how did you end up kind of with a less developed units this quarter.

Yes, that's a great question.

It was it was simply the determination.

It wasn't feasible too.

Recede with those investments.

And obviously, there's a carrying cost to maintaining.

The option to develop and so we made the decision to have those back in the market.

Got it appreciate that and last one for me.

Management operations, especially on the residential side.

Any expectations for how that might flow through this year.

Yes, again, both really good questions. The first one.

Termination of the third party management.

Yes.

Can you explain the rationale behind that but we want to we are very focused on creating a best in class platform to sit above best in class assets in the multifamily sector.

We want to focus the resources that we have to be managing our own assets and continuing to enhance and build out that platform.

The gross revenue loss.

From that is about <unk> <unk> per year, but obviously that's cost associated with that third party management unless you do it and significant volume is not a very.

Profitable business.

And then in terms of the overall cost pressures, which we're seeing absolute costs highlighted market.

I think we've done a good job of managing expenses and if you recall last year, we announced.

Through a series of measures to streamline.

Our operations and run more efficiently, which is an ongoing initiative.

We remain on track despite those pressures.

To still deliver on our $5 million of run rate cash expense savings this year.

Got it I appreciate the answers thanks, everyone.

Thank you very much for the questions.

And we'll move on to your next question with Michael Lewis with <unk> Securities. Please go ahead.

Great. Thank you.

Just following up on a previous question about the board and the strategy you could correct me if I'm wrong I don't remember.

A formal end to the to the formal strategic review.

Okay.

Is it fair to say now the strategy is that or is there still kind of.

Or is there still a review going on and is that kind of a process. That's incurring any any cost still are.

Or are we on that.

None of the strategic review committee is still very much intact and very much focused on.

Creating maximizing value for shareholders.

That is wholly independent from what we're doing as a management team what we're doing as a management team is creating entity value.

Through the steps that we've taken over the last year.

We've got a clear strategic direction will go to more focused business, we've got a more stable and cleaner balance sheet more efficient more effective operating platform and we.

A more valuable business as a result of all of that so thats, our focus as a management team to continue.

Creating entity value on the strategic review Committee.

<unk> has been and will continue to evaluate.

Paul any and all options available.

Available to it to maximize value for shareholders.

Okay, I mean that sounds kind of like an ongoing rate the door is always open.

<unk>.

Anyway, I don't know if that sounds like a separate formal strategic review, but.

Anyway.

My second question I wanted to ask about I know youre not going to be ripped.

Reporting the same store NOI on the office anymore, which I understand.

Could you just kind of point us to which direction.

Kind of occupancy and the revenue in that in that business going before asset sales rates. So the kind of steady state portfolio and I asked that because I know you have vantage is a big lease expiring in 2023 I think amtrust.

Is expiring in the near term.

Is the risk of that occupancy going going down while youre looking for a for a buyer of those assets.

Yes.

We don't have.

We don't have much rolling this year around 85000 square foot Thats Rolling this year.

So I think your question about Directionally, which way that's going.

Obviously, we've just signed.

Our new lease with collectors universe in terms of next basis 90000 square foot on that space, but it is a significantly longer time.

16 years.

So it's roundabout eight that we had so thats in value enhancing and it's an encouraging sign I go back to my comments about where we believe the market potentially may be going.

Or tenant demand may be going and I think that's going to be really the biggest potential value driver going forward for this year is going to be.

Whether you can do more leasing and grow the top line, but in terms of rollover, there's really very little this year.

Okay, how about the ones next year that I mentioned tonnage and amtrust than any others.

Youre right very little rollover in this year I think next year is a bigger rollout for year 2014, or 15% of the portfolio.

And then next year, we obviously have a little bit.

More than we do this year.

From memory I think it's around.

5% or so of the space.

Actively.

<unk> engaged in dialogue with our tenants.

Two.

To retain them, we've invested a lot in harvest side.

Two thirds of the renewals losses, two thirds of the leasing last year and the portfolio was renewals that we will continue to adopt that approach with future.

Yes.

He says that approaching.

Approaching expiry and we will continue to focus on.

On attracting new tenants like collectors universe to the grateful position that harvest that often.

Okay, and then just lastly from me.

You mentioned.

Not really raising new capital that kind of recycling capital.

You did establish an ATM program.

In December .

I was just curious.

Is that just to have.

An arrow in your quiver kind of adjusting case or for whenever the stock price gets.

So where do you think it's appropriate.

No no intention I assume.

Utilizing that anytime soon that's not in your capital plan.

That's absolutely correct I think it's just we felt it's prudent for a company.

To have one.

That is why we put it in place, but there is no intention to use that in the midterm.

Okay, great. Thank you very much.

Thank you very much.

And we will go ahead and take a follow up from.

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