Q1 2022 Veris Residential Inc Earnings Call
Good day, everyone and welcome to various residential 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 cause. We can also get the shoring up the anticipated results will be achieved.
We refer you to the company's press release annual and quarterly reports filed with the F. F E C for risk factors that impacts the company with Dash I would like to hand, you over to my Botnia.
Various 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.
First quarter of 2022 was another positive period for us as we continued to advance our transition to a pure play multifamily REIT.
We achieved strong operational performance across our multifamily portfolio.
<unk> leasing of House 25 newest multifamily development in Jersey City.
<unk> entered into an off market transaction to expand our multifamily portfolio through the acquisition of the James a recently built costs. A 240 unit property in Park Ridge, New Jersey and closed on the sale of the four land parcels.
Youll pricing fundamentals across our 6691 unit multifamily portfolio continued to improve during the quarter with occupancy at 97, 5% and a blended net rental growth rates 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, how are the consistent with the wider industry. We anticipate occupancy may be at or close to peak levels and as such we will focus on finding the optimal balance between occupancy and rental growth to drive NOI going forward.
Our 5825 unit same store operating portfolio, which for the first quarter included the Emery in Massachusetts was 97, 2% occupied as of March 31st up from 89, 8% in March 2021, and a three 6% above pre pandemic levels driving year over year same store revenue in <unk>.
Likewise, the 14% and 20% respectively.
Our class a multifamily portfolio offers a distinctive living environment that aligns with our resident sustainable lifestyle preferences and increased focus on health and wellbeing.
The success of this strategy as evidenced by the strong initial demand we've experienced that house 25, which commenced lease up on April six.
It is already over 28% leased.
As we continue to enhance our multifamily platform I am pleased to share that our new website will be launching at the end of next week.
New website offers prospective residents employees and investors a wide range of market, leading features including the ability to search.
Basically across our properties conduct virtual viewings and communicate with the onsite 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 repayment associated $150 million loan.
We use net proceeds from this sale as well as from the sale of two land parcels in West Windsor, but 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 RV land parcel in Jersey City, and a land parcel in port Imperial for total of $100 million.
And expect to close on the remaining two previous previously announced land sales the $25 5 million in the coming months.
A portion of the proceeds from our land sales is being reinvested utilizing a 10 31 exchange to acquire that James.
Uli built 99, 5% leased class a 240 unit apartment building located in park ridge for $130 million or 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 comparator below six year average age of our portfolio relative to peers, it's extensive amenity offering and our sustainability credentials as evidenced by the property being awarded the National Green building standards Silver certification.
All right, great and one of new Jersey's most populous and affluent areas just 25 miles northwest of Midtown Manhattan.
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 <unk> of the annual core <unk> 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 was 79% leased as of the end of the first quarter in January as previously disclosed we executed a new 15 year 130400 square foot lease with collectors Universe Harbor site <unk> III.
During the first quarter, we also executed an additional 11800 square feet of leases.
Turning to the financials the company reported a net loss per diluted share of 13 in the first quarter of 2022 versus net income of six 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 <unk> space, which has been excluded from core <unk>.
<unk> for the quarter was nine cents per diluted share versus <unk> 17 in the fourth quarter of 2021.
Last quarters <unk> benefited from the <unk> related to onetime true up adjustments and expense recoveries for the office portfolio, including solid assets.
Excluding these onetime items the first quarter of 2022 was low in the fourth quarter by <unk> <unk> as a result of the sale of our Hoboken asset <unk> due to the loss of revenue on the space vacated by <unk>, which we expect collectors universe to take possession of in June .
And a 2% reduction in hotel NOI, partially due to reduced bookings related to <unk> as well as the normal first quarter seasonal variation.
These reductions were offset by a <unk> 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 our first full quarter of income from the three most recently stabilized assets the Upton Capstone and warehouse line 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 collectors universe lease and continue to work on our Jersey City whole foods build out.
Hosting and <unk> negative $700000 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 collectors universe. It should be noted however that these costs will be fully funded by the $25 million cash termination fee that we received from mfg.
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 at the tight labor markets generally inflationary pressures and supply chain issues continued to bear weight.
Our waterfront multifamily properties, which represent roughly two thirds of our current multifamily portfolio going to concessions through the third quarter of 2021 from which we will 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 five two years. We believe that we are in a strong financial position relative to the current market environment and potential fed rate.
<unk>.
With that I think we're ready for questions. Operator can you. Please open the line for Q&A.
Certainly.
If you would like to ask a question you can do so now by pressing star one.
Thats Star one if you'd like to ask a question.
We will now take our first question.
Tom Catherwood from <unk>. Please go ahead your line is open.
Alright, Thank you very much and good morning, everyone.
On the apartment rent growth trends on the focus on that a bit.
You talked about 13% to 16% I think the Sop, even mentioned that April was 17%.
How do you see that trending hammer wondering is do those comps get tougher as you go throughout the year or is 2022 is going to be pretty consistent as far as what you expect from those rent growth trends.
Yeah.
Good morning, Paul.
Thanks for the question, it's a good one.
Hard to tell but I would say that certainly.
Leverage when it comes to pricing is very much in.
The landlords quarter at the moment with occupancy being where it is.
And demand being extremely resilient.
I'd actually growing and momentum with <unk>.
Constituents such as foreign students.
Would expect to see that number still be pretty strong for the remainder of the year.
Got it and then in terms of concessionary trends I know you've talked in past quarters about how you were able to pull back on those I know it can differ between new construction deliveries in your existing assets, but how are you seeing the trends in concession use.
And specifically as it relates as well to house 25 were you able to kind of pull back on those compared to previous underwriting or is that pretty much at market, where it's been the past few years.
Okay.
Again, a very good question.
We have been.
The trend has been meaningful pullback.
Almost entirely with the exception.
Our limited concessions.
Okay.
All 25 is a great example, and if you think about.
Ben.
Okay.
Hi.
So out of the building.
Building.
Yes.
Even though there has been so strong.
The demand.
Now.
Hi can you hear me.
Yes, we've actually been reduced.
In concessions already a month into the fiber.
Five as well.
So again, a real testament to the quality of that product.
But also.
Features across the market as well.
Got it I appreciate that color my boss and then.
Thinking of the of the land sales and the purchase of the genes and I might be confusing this but.
Some of those land sales it seemed like they came out of the various side of the portfolio, probably maybe the assets in Windsor West Windsor, and then some of them seem to come out of the VR T. J Z. When you first off is that kind of like the urban land for example.
Port Imperial Park parcel first off is that.
Correct and then second with the 10 31 into the James does that then that came out of the Z R. T. JV does that mean, the James sits within that JV structure or is that within kind of various wholly owned structure how does that work.
Alright.
Yes.
It can be.
Go ahead.
Okay.
The proceeds from that.
You mentioned.
Getting feedback came as we.
Can you hear me Tom.
Sorry about that poor for cell receptor.
You hear me better now.
Yes.
I was just saying that youre, absolutely correct that the proceeds from West Windsor, which sat on the corporate side those were used to repay debt and the proceeds within.
The what was Roseland side of the business the joint venture with what point.
Used to acquire the James in the 10 31 exchange Youre absolutely right.
Got it I appreciate it and last question from me specifically on the James since that delivered in 2021, I'd imagine those rents were pretty impacted by the pandemic still what are your expectations for stabilized yields on that asset as you are able to roll those leases to market.
It's <unk>.
Absolutely right and that was very much part of the equation when we.
The underwriting when we were analyzing not that property.
They are definitely I'd say probably paid rent.
And have pretty significant room, we think for growth what we're seeing already and we haven't closed the transaction.
But what we're seeing in units at a tightening of renewing there is as much as 20%.
Growth in the rents so.
You also have to factor in so I think it stabilizes somewhere.
While most of <unk>.
Of the four and then you also have to factor in that we recycled lands that we're setting.
And then the joint venture and how to not insignificant carry cost associated with it.
Of touch over $1 million.
And so when you factor that in from an earnings accretion perspective.
It's actually even better than.
And that.
That.
That makes a lot of sense.
Is it for me thanks, everyone.
Thank you Tom.
Thank you we will now take our next question from Brian <unk> from Evercore ISI. Please go ahead.
Hey, Good morning, So you sold 111 river in the quarter. According to the supplemental Theres still one other office asset under contract. So is there anything you can share there as it relates to timing of that asset sale and any others that might be in the hopper.
Good morning, Brian .
Yes, So 101 Hudson is.
Yellow asset.
Is under contract and.
Still in the process of closing so.
I think we'd always that we expected to close sometime in the first half of this year and my expectation is that it will still be there or thereabouts.
I will close in terms of.
Any further.
Updates on future dispositions nothing to report at this time.
Got it okay.
Maybe just talk more broadly about what the buyer pool looks like today for for office product in.
Have you seen a shift in interest in the past few months, just given the macro backdrop and increased financing costs.
Yes, I mean, I think increased financing costs will factor into.
It can be levered buyers.
With with shorter time.
Return horizons, it will certainly be a factor, but what we are seeing still today has a good quality product.
And particularly product that offers.
A decent.
Return proposition there is still there is still good demand out there from.
From a pretty varied group of capital as well.
Okay and just last one from me can you just talk about the demand you're seeing on the waterfront.
What that pipeline looks today, how youre trying to entice tenants to sign leases over there.
Whoa.
So maybe speaking.
A little bit more generally about both.
Slides of the river we saw.
<unk>.
Okay.
<unk> been in close out the year last year very strong four consecutive months of very strong leasing.
The start of the year was little bit weaker.
Most likely related to <unk> and.
And a further displacement of the return to office, we are seeing some signs now.
March April where that maybe to some extent rebounding on this side of the river.
<unk>.
On the waterfront, we saw a very strong first quarter.
So just over 500000 square feet of leasing done.
Which is almost as much as the total volume of leasing that was concluded on the waterfront last year, which is.
Around 600000 square foot.
But lease.
Leasing here is extremely low.
<unk> in an unpredictable and so within that 500000 of 110000 square feet of leasing that was done in the first quarter. There were some large transactions, including our own collectors universe, but.
Also of note abbott's.
I'd say there is activity.
I wouldn't necessarily necessarily say that 500000 square foot in the first quarter is.
Likely to be a run rate for the remainder of the year, but there was some positive.
Signs of life on both sides of the radar.
Alright, thanks very much.
Thank you Brian .
Thank you we will now take our next question from Nick Joseph from Citi. Please go ahead.
Hey, it's Michael Bilerman.
Here.
Robert can you just.
If you think about.
Recycling capital and I recognized you sold the land and you bought naphtha into a part of a 10 31.
But if you step back from it.
Leverage is still pretty high.
You have the waterfront assets that you are trying to eventually get out of <unk>.
The stock price.
Trades at a significant discount to asset value.
So why not why even do a transaction where youre putting out capital why don't you trying to sort of achieve.
Value.
And continue to reduce debt and sell assets.
Well, we have actually done that as well Michael.
In recycling two use of proceeds have been debt repayment, we have repaid about.
Aside from the corporate bonds that we repaid last year, we paid about $220 million of that.
When it comes to capital recycling looking at the highest and best use of the capital that's partly driven by the opportunities that are available to you and partly driven by the constraints that you have to and.
For the proceeds that we use towards this acquisition, which.
Has tremendous merit on a standalone basis and is a great fit with our portfolio.
So I would classify as a great opportunity for us, but we will start to take into considerations limitations that.
We are bound by under the joint venture agreement with rock point.
That would <unk>.
Really.
Now that's complicated as I'm sure you know, but ultimately.
<unk> mean that were restricted to a 10 31 exchange where there is a taxable gain that would be triggered through a sale.
Sure.
A leverage perspective.
I think this is actually also helpful because.
But if youre looking at net debt to total capitalization it's neutral.
We've taken land that had a carrier cost associate under Atlanta had a carry cost associated with it.
And put it into a yielding.
That's one opportunity.
And from a net debt to EBITDA perspective, we've now taken land that was unlevered and had a carrying cost associated with it.
And turned it into an EBITDA yielding.
Investment that will contribute to.
In an accretive way to those metrics. So this was.
That gives you some insight into the rationale behind that decision, but that was partly the opportunity partly the constraints that were on that.
Yes.
Get that there.
Women's and turning land into yielding assets helps debt to EBITDA.
Paying down debt and reducing interest expense is also an element of <unk> debt to EBITDA as well.
Arguably given your capital commitments in the future youre going to need additional proceeds to be able to fund.
What you wanted to do from a development redevelopment.
Opex perspective.
I guess was there any talk about I guess.
Restructuring the rock point joint venture so that the next step.
And sort of clean up.
Kelly.
Sorry.
I still call it that Kelly sorry.
Great.
Yes, so look I think.
As we know the rock point's joint venture.
Hi, Amit.
Make whole.
<unk> of it.
So then in March next year, So I think that's.
Focus when it comes to clean up is probably more likely to be along the lines.
Finding a path.
Ultimately.
Hang up on him.
Negotiated basis as opposed to restructuring.
Okay.
We'll need the capital available for that.
Alright, and then just finally you didn't talk on the thing you didn't touch on the stock price, which obviously.
$16.
I guess, what are you trying to do with mix or anything else that you're focused on to try to narrow the gap between what's left in this portfolio and where the public market.
Is valuing it at I mean, what's the.
I can't imagine you or the board is happy with where the stock prices given the steps that you've taken over the last 12 to 18 months. So what is going to be the focus from here.
To generate value for shareholders.
Yes, Michael.
Not going to comment on short term share price movements, particularly when that driven by wide.
Macro.
Events that we're seeing.
Around us as well.
What I would say is we have been and we remain very focused on.
Creating and ultimately unlocking value for shareholders. So we will the steps we've taken whether it has been.
To simplify the business if you think about the transformation over the course of the last.
12 15 months.
December 2020 started right before I took over.
Sure.
The company that had two near term debt maturities recourse debt.
We will have much more complicated multiple complex of the business.
Around 38% of our NOI came from multifamily closed out the year with that number being 56% and we re.
Repaid all of that recourse debt through a $1 billion.
Non strategic asset sales now pro forma for the.
One question.
James that number likely to around 80%.
We're doing as a management team, we're taking steps to.
Ultimately make us a more focused.
More efficient more effective and more valuable entity.
And either that gets recognized.
<unk> in the public market or it doesn't.
And if it doesn't I can tell you that we have a board and strategic review Committee is highly focused on making sure that the value. That's created by the management team has unlocked for shareholders.
Alright is there.
Anything on the waterfront office assets that I mean, do you have a process going on now to sell that.
Or are you still trying to lease it before you sell it.
No.
We've been I would say we are in early stage of exploring our options with regard to.
The sale of those assets and other non strategic assets.
But.
For the time being for as long as we own any asset, including the harbor side, we are the R&R and we will continue to focus.
On <unk>.
Enhancing the value of those properties in any way that we can including leasing.
Just last question Robert prior.
You did have some approaches from different companies and you've talked about in your filings different party a and B is there anything are corporately that you've been able to reengage with some of these parties that the company had previously been in discussions with.
Sure.
Hello.
I would say that.
I mentioned earlier, the board and the strategic review Committee, a highly focused and have been on.
The creation and unlocking value for our shareholders and to the extent that that.
Is there was interest from any party in.
Relation to inbounds relation to assets or something more strategic.
It is the duty of the board and the Src to evaluate those opportunities and that's something that they take it very seriously consistent with their fiduciary obligations.
Alright, thank you.
Thank you.
Thank you. Please we'll now take our next question from John Pawlowski from Green Street. Please go ahead.
Hey, Thank you for the time.
Can you just provide a little bit more details on and help us think through the trajectory of expenses from the six 5%.
Kind of which line items, you expect to accelerate here, which line items should we expect some relief next few years.
Sure.
Think on the whole John we've been pretty.
Sure.
It's a pretty good at managing our controllable expenses, but I would say that on the hull.
We're a company that's in transformation.
And we will continue to be in transformation.
In the near time.
So youll see some volatility or some of this.
<unk> movement in those numbers.
In both directions, but the general trajectory is being philosophy.
We've reconfigured the organizational architecture and just make.
Make it more efficient.
But in terms of people processes technology.
We've been able to manage the containment fatty while where we have seen some uplift obviously.
Has been on the personnel front.
But that's been great.
Three wide phenomenon aerosol.
Okay.
Should we expect additional acquisitions multifamily acquisitions this year and if so what kind of size of volume should we expect.
Well, it's hard to say I think to the extent that we free up the capital.
Through the sale of nonstrategic assets this year.
We will working with the board on the strategic Review Committee.
Determine the highest and best use of that capital at that point in time.
Based on.
The opportunities and any constraints that we may be under as well.
What we can.
That capital towards.
I would I would say we are we are always evaluating opportunities on the acquisition front.
But the bar is pretty high and has been pretty high.
And.
There is no set target to say we must do.
Asked acquire them and we must acquire this march not it'll it is one of a number of potential.
Uses of capital that is recycled but.
But any determination.
With regard to that.
Yeah that the highest and best use we've made much closer to the time of academia vascepa that capital.
Okay last one from me.
Could you remind us if amtrust and Vonage America are known move outs for next year.
Yes, Amtrust is what I would say is in terms of the move outs.
The report you put out I would just point out that there is a number and that two things.
The 18% includes 101 Hudson, which is under contract.
To be solved but it also includes.
<unk> three main which is significant in terms of square footage.
So this is a small loss remaining suburban office asset that we've got that is really really a development project.
The lease expires.
It's significant in terms of square footage, it's insignificant in terms of.
<unk> contribution or value contribution.
When you strip those out and you just look good.
<unk> fall harvest side next year, it's more like 7%.
Alright.
Pointing that out.
Okay Amtrust I just wanted to thank Kevin.
Thank you for that and it makes sense.
Thank you.
Thank you.
There are no further questions I will turn the call back to your host.
Thank you very much for your time today.
Another productive quarter for us and we look forward to updating you again next quarter.
Ladies and gentlemen that will conclude today's conference you may now all disconnect.
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Sure.
Yes.
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