Q3 2023 Veris Residential Inc Earnings Call
Greetings and welcome to Venice residential Inc. Third quarter 2023, Fundings conference call.
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A brief question and answer session will follow the formal presentation.
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As a reminder, this conference is being like contract. It is now my pleasure to introduce your host pattern feel though general counsel.
MS Freedman you may begin.
Good morning, everyone and welcome to various residential third 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 impacted the company.
With that I would like to hand, the call over to my button, yet various residential chief Executive Officer, who is joined by Amanda Lombard Chief Financial Officer My Bad.
Thank you Sharon and good morning, everyone in the third quarter, we continued to build upon the strong results. We delivered during the first half of the year.
Since redeeming points preferred interest in July we've closed on the sale of the four non strategic asset leasing $122 million of net proceeds which were used to repay the balance of the timeline, a revolving credit facility and refinanced approximately $350 million of debt.
Actively addressing near term debt maturities and enhancing our overall debt maturity profile.
Operationally, we continue to outperform during the third quarter, achieving a blended same store net rental growth rates at nine 3% and same store NOI growth of 17, 1% despite widespread softening of rents across the multifamily sector.
The $122 million of nonstrategic assets closed since the end of the second quarter.
Total value of transactions closed this year, that's over half a billion dollars.
Specifically the most recent transactions completed include two father office buildings.
Slides six and 23 main street and two land plots hub aside for mm three campus.
The net proceeds realized from these sales combined with the excess cash flow from our now positive cash flow and operations and equity release from the refinancing of house twenty-five enabled us to study repay the balance of our term loan and revolving credit facility and just three months, resulting in a substantial interest expense saving in the process.
One seven Morgan and Sue campus remain under binding contract I don't anticipate it to provide the company with additional liquidity upon closing.
Turning to operations during the quarter same store occupancy and our retention rates remained stable at 95, 5% and 55% respectively.
The blended same store net rental growth rate remains strong at nine 3%. Despite the end of the third quarter typically marks the start of the slower leasing season across the multifamily sector and rent increases being based on high horsepower, it's from 'twenty to 'twenty two.
While we anticipate further clothing of rents consistent with pace. We believe are highly mean size class a portfolio continues to be well positioned for the less active winter leasing season.
Our continued outperformance relative to the broader market, which saw rents rise by only 1% nationally year over year and by 5% in New Jersey reflects the resilient demand for a high quality class a portfolio and the strength of our operational platform and capturing that demand approximately 30% of which was comprised of move ins from New York City.
Furthermore, new supply in the Jersey City waterfront market continues to be muted with very few new deliveries expected in the next 18 to 24 months.
The sustained revenue growth, we achieved during the quarter coupled with our continued focus on expense management contributed to a 17.1 of them. The same question same store NOI compared to the third quarter of 2022.
Representing an additional $17 $9 million of NOI generated in the nine months ended September 30th X.
And a significant contribution from house 25.
This continued outperformance is reflected in our decision to once again raise NOI guidance to 14% to 15%.
Andre will discuss this in further detail.
I was one of our industry leaders and yesterday, we were proud to be named global listed in regional sector leaders by the 'twenty to 'twenty three global real estate sustainability benchmark World class.
This month.
'twenty two 'twenty three being only the second year in which we participated in the benchmark. We once again down to five star rating for Op performance, a testament to our ongoing commitment to sustainable operations diversity and the advancement of yesterday actions supporting the well being about residents employees suppliers and communities.
With that I'm going to hand, it over to Amanda who will provide an update on our financial performance during the quarter.
Thanks, My bad, but the third quarter of 2023 net loss available to common shareholders was 60 cents per fully diluted share versus a net loss of $1.10 per fully diluted share in the third quarter of last year.
The third quarter of 2023 includes interest cost of Mandatorily redeemable non controlling interests of $35 million or approximately 35 cents per share related to the buyout of rock point as we detailed last quarter.
Oh for sure with 12 cents for the third quarter as compared to 16 cents last quarter. The second quarter was positively impacted by two nonrecurring items two cents from the settlement of two real estate tax appeals until he sends from the early tax credit, which we typically receive in the second quarter.
Oh for photo share with 15 cents as compared to 18 since last quarter for the same reason.
Same store NOI was up over 17% compared to the same quarter last year, reflecting 10, 5% revenue growth and our continued efforts to mitigate property level expense inflation.
Controllable expenses were up six 4% quarter over quarter due to higher costs related to the peak leasing season.
However year over year controllable expenses ticked up only slightly from two 6% to three 9%.
Our non controllable expenses continue to be variable period to period.
This quarter, we renewed our property insurance and while our insurance premiums increased by approximately 30%.
From the prior year a reduction in our self insurance based upon our annual review of that program offset the increase.
In addition, real estate taxes as compared to the prior quarter are up significantly as a result of the $2.7 million favorable adjustment in Q2 related to the resolution of tax appeal.
Which was slightly offset this quarter by an increase of half a million dollars related to the Finalization of Jersey city, 20th twenty-three taxes.
Next quarter, we expect that non controllable expenses will be approximately half a penny higher than this quarter on a run rate basis.
In regards to our general and administrative costs.
After adjustments for noncash stock compensation, along with severance payments G&A was down to $8 7 million for the quarter.
The fourth quarter, maybe slightly higher than the third quarter due to various costs that occur regularly in that quarter. However.
However, overall, we remain on track to record the lowest level of G&A in nominal terms in over a decade and the lowest when adjusted for inflation since the nineties.
Onto our balance sheet during.
During the quarter, we entered into a traditional term loan and credit facility to complete the negotiated redemption of off points before interest embarrass residential trial.
The balance of these facilities was repaid in just three months using net proceeds from $122 million of recently closed non strategic asset sales excess proceeds from the refinancing will have 25 on surplus cashflow from are now cash generative operations.
We proactively refinanced how's twenty-five fourth quarter 'twenty 'twenty four maturity at an interest rate of 5.46%, reducing the cost on this loan by 124 basis points.
As a result of this we were able to increase the weighted average maturity of our total debt portfolio from three six to four years, while improving our maturity ladder with no more than 23% of our debt portfolio due in any given year.
And an average of 15% maturing per annum over the next five years.
As of October 24th effectively all of our debt is fixed or hedged with the latest refinancings, which constituted 14% of our overall debt stack.
Our weighted average interest rate marginally from four 4% to four 5%.
While our net debt to EBITDA remains sensitive to earnings and prone to fluctuation.
It has gradually trended down to 12.4 times pro forma for the recent repayment of the transitional loan as we prioritize debt repayment, having reduced net debt by approximately $1 billion. In addition to the redemption of rock point $520 million preferred interest.
Since the end of 'twenty 'twenty.
Looking ahead at our upcoming consolidated maturities.
Our first $308 million of mortgages, we expect any refinanced as we move into 2024.
While the commercial real estate that markets are constrained that remains demand to lend for high quality multifamily assets like ours as evidenced by the recent financing accordingly, we anticipate utilizing cash flow from operations and proceeds from continued nonstrategic asset sales.
You saw leverage on these loans as we refinance them to the extent required or is otherwise determined by the board and management.
Turning to our outlook I think Bob had mentioned our portfolio's performance has provided us with the flexibility to raise our same store NOI guidance range to 14% to 15% from 10% to 12%.
This is largely driven by higher than expected market rent growth, which we expect to be in the range of 9% to 10% and better than expected outcomes on insurance and real estate tax renewals.
We project expenses will end the year in the range of 2% to 3%.
This concludes another strong quarter for various residential during which we continued to demonstrate multifamily outperformance and advance the completion of nonstrategic asset itself, while further strengthening our balance sheet.
With that we're ready to open the line for a question.
Thank you.
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Great.
The first question comes from the line of Eric Wolfe from Citi Research. Please go ahead.
It's actually Nick Joseph here with Eric maybe just starting on the the operating portfolio could you touch on where you are seeing new lease rate growth day in October and then where renewals are kind of are trending for October and then sent out for November and December.
Sure Good morning, Nick Thank you for the question.
So we said last quarter that we expected rents to model right now I mean, we've had very strong rental cars double digit rental growth that's not sustainable in perpetuity, we indicated that we'd be in the mid to high single digits range going forward, you've seen us come in at the high end of that I do.
Well that will start to moderate to somewhere in the mid single digits.
Which is much more let's say indicative of longer term growth rates.
So is there anything youre seeing in terms of rent to income or any other affordability metrics that are impacting that or is it is it just more normal seasonality and just such coming off of such high rent growth.
Yeah.
The two latter points that you made so it's from an affordability standpoint, we actually remain in very good shape, we've seen good income growers.
Yeah. There was obviously some commentary about that slowing down more generally, but we've seen that sustained at around 15% or even actually slightly below 15% now in terms of rent in that disposable income.
More of a function of you're now lapping.
Periods of extremely high rent growers.
And I'm not okay.
It's just not sustainable and we've also entered now.
Seasonally tough periods when it comes to multifamily sector on the whole.
Right. Thanks, and then just.
On the insurance renewal can you quantify the reduction in the self insurance.
Sure This is Amanda.
I think as I said earlier, it's about half a penny that you'll see our non controllable expenses go up next quarter. So.
So I think that's what you can expect.
Okay. Thank you.
Thanks, Matt.
Thank you next question comes from the line of Steve Shukla with <unk>.
Evercore ISI. Please go ahead.
Yeah. Thanks, good morning mob, but now that you I guess essentially completed is kind of the cleanup of all the noncore assets rock point, you're really down to just you know one office property I guess, how are you sort of looking at the organization as you think about moving forward. It you know.
Operator: Greetings and welcome to Veris' Residential Inc.
As a standalone enterprise Ah you know realizing that a monetization event kind of out of your control, but you know how are you thinking about the organization. The people in place and you know what else do you need to do to make this the best in class apartment company.
Operator: 3rd 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 or pray the assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
Good morning, Steve. Thank you that's a great question and something that we've been giving a lot of thought to ourselves as well.
The last.
Taryn Fielder: It is now my pleasure to introduce your host, Taryn Fielder, General Counsel. Thank you, Miss Fielder, you may begin. Good morning, everyone, and welcome to Veris' Residential's 3rd quarter, 2023 Earnings Conference call.
Three is I would describe as the transformation phase where we've sold.
Like the $2 billion of non strategic assets predominantly all fast and really tried to get ahead of that exiting an asset class that I was not strategic to us and pivoting to an offsite costs, whereby read but continue to believe in the long term fundamentals and is very much core swap business.
Taryn Fielder: I would like to remind everyone that certain information discussed on this call may constitute forward-looking statements within the meaning of the Federal Security's 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.
Most of the areas you highlighted in <unk>, five and that's not insignificant given it.
Lebed office building.
And has substantial equity trapped in it.
But the transformation phase is effectively over.
Mahbod Nia: With that, I would like to hand the call over to Mahbod Nia, Veris' Residential's Chief Executive Officer, who is joined by Amanda Lombard, Chief Financial Officer, Mahbod. Thank you, Taryn, and good morning, everyone. In the 3rd quarter, we continue to build upon the strong results we delivered during the first half of the year. Since redeeming rockpoints preferred interest in July, we've closed on the sales of four non-strategic asset, releasing $122 million of net proceeds, which will use the repay the balance of the term loan and revolving credit facility, and refinance the approximately $350 million of debt, proactively addressing near-term debt maturities and enhancing our overall debt maturity profile.
What I would describe this next phase is the optimization phase.
And that we do have a number of levers available to us in a number of initiatives.
To allow us to now be able to really optimize what we have in this pure play multifamily.
Platform and.
Organic we seek to continue enhancing its value a number of different prongs to that and we're evaluating those at this time working with the board.
Some of it will involve some further simplification that could.
Touch on corporate structure, our capital structure.
Mahbod Nia: Operationally, we continue to outperform during the 3rd quarter, achieving a blended, same-store net rental gross rate of 9.3%, and same-store NOI gross of 17.1%, despite widespread softening or rents across the multi-family sector. $122 million of non-strategic assets closed since the end of the 2nd quarter, but the total value of transactions closed this year at over half a billion dollars. Specifically, the most recent transactions completed include two further office buildings, half a site's four and three campus.
In other areas a large part of it is capital allocation. If you think about the capital within the business today there is still.
Significant amounts of equity that is either idle or generating a sub optimal return for us and so reallocating that capital to.
A higher in a more accretive use really has the potential to continue driving.
The top line.
How does it flow down to the bottom line for us.
Going forward given the size of the business are there other areas potentially we're looking at a couple of <unk>.
Mahbod Nia: The net proceeds realized from these sales combined with the excess cash flow from our now-positive cash flow operations and equity released from the refinancing of half-25, enabled us to fully repay the balance of our term loan and revolving credit facility in just three months, resulting in a substantial interest expense saving in the process. $107 Morgan and two campus remain under binding contract and are anticipated to provide the company with additional liquidity upon closing.
On the whole we have a very young.
Young portfolio as you know, but there are one or two areas, where we think that could be potential value added opportunities and continued operational efficiencies all of which together really do have the potential to continue driving.
Or enhancing value of of the part for them in this mixed optimization phase.
Mahbod Nia: Turning to operations, during the quarter, same-store occupancy and our retention rate remains stable at 95.5% and 55% respectively. The blended, same-store net rental gross rate remains strong at 9.3%, despite the end of the 3rd quarter, typically marking the start of a slower leasing season across the multi-family sector and rent increases being based on high growth periods from 2022. While we anticipate further cooling of rents, consistent with peers, we believe our highly-emunicized class-a-portfolio continues to be well-positioned for the less active winter leasing season.
But I guess, there's a just maybe a quick follow up do you feel like you have kind of the right people in place to.
Sort of make all these changes and steps or do you feel like you still need to add to the organization.
No absolutely you know we've got a.
Our lean, but very effective team as you've seen.
Today, we've got a long way towards a rebuilder.
Rebuilding the operational side of things as well so no I'm very comfortable with the team that we've got that we can execute on this next optimization phase.
Mahbod Nia: A continued app performance relative to the broader market, which saw rents rise by only 1% nationally year-of-year and by 5% in New Jersey, reflects a resilient demand for a high-quality class airport folio and the strength of operational platform and capturing that demand, approximately 30% of which was comprised of moving from New York City. Furthermore, new supply in the Jersey City waterfront market continues to be muted, with very few new deliveries expected in the next 18-24 months.
Okay, and then you know theres been some articles about you know kind of rent control coming up in Jersey City, and and maybe some of the surrounding communities can you maybe just sort of speak to I know, it's a very complicated and long winded answer and longer than this conference call, but just maybe high level. How are you sort of thinking about the rent.
Control within kind of the market in your portfolio and are there things that you need to do to it.
Mahbod Nia: The sustained revenue growth we achieved during the quarter coupled with our continued focus on expense management contributed to a 17.1% growth in same-store NOI compared to the third quarter of 2022, representing an additional 17.9 million dollars of NOI generated in the nine months and its September 30, excluding the significant contribution from House 25. This continued app performance is reflected in our decision to once again raise NOI guidance for 14 to 15%.
Make sure that you know you followed kind of all the rules and regulations or is there any risk about rent control being imposed on any part of the portfolio.
Sure.
We believe that we've taken all the necessary and appropriate steps to preserve the available exemption from rent control ordinances, which.
May be applicable to the properties in our portfolio.
Well I'd say in a fortunate position that we have a younger vintage portfolio.
Mahbod Nia: Amanda will discuss this in further detail. As one of our industry leaders in the S.D., we were proud to be named Global Listed and Regional Spectre Leaders by the 2023 Global Real Estate Sustainability Benchmark, or Grass, earlier this month. Despite 2023 being only the second year in which we participated in the Benchmark, we once again under five-star rating for our performance, a testament for our ongoing commitment to sustainable operations, diversity, and the advancement of ESG actions supporting the well-being of our residents, employees, suppliers, and communities.
That helps in that respect and that we've developed.
Most of those offsets.
And so we feel comfortable with the position we're in.
Great. Thanks, that's it for me.
Thanks, Dave.
Thank you.
Next question comes from the line of Anthony Pallone, but J P. Morgan. Please go ahead.
Thank you I guess first question is around non core beyond harborside five it does sound like you still have some things that you might consider getting.
Amanda Lombard: With that, I'm going to hand over to Amanda, who will provide an update on our financial performance during the quarter. Thanks, Mabud. For the third quarter of 2023, NetLoss available to common shareholders was $0.60 per fully diluted share, versus a net loss of $1.10 per fully diluted share in the third quarter of last year. The third quarter of 2023 includes interest costs of mandatory redeemable non-controlling interest of $35 million, or approximately $0.35 per share, related to the buy-out of Rockpoint as we detailed last quarter. For a full per share, was $0.12 for the third quarter, as compared to $0.16 last quarter.
Getting rid of can you, maybe just talk a bit more about what those might be and where there might even be liquidity that's acceptable to pursue other sales right now in the market.
Sure. Good morning, Yeah, I'll have a slide five is the obvious non strategic one question really be all not is.
Do we seek to potentially further rationalize the land bank.
Which to the extent.
<unk> developed a radius just idle equity again and the business that isn't really generating over time. So that's really what I was primarily referencing.
Amanda Lombard: The second quarter was positively impacted by two non-recurring items. Two cents from the settlement of two real estate tax appeals and three cents from the Irby tax credit, which we typically receive in the second quarter. A FF full per share was $0.15, as compared to $0.18 last quarter for the same reason.
Without comment but that thought.
10 show.
Pockets of capital as well if you look at.
The joint venture is the remaining joint ventures, where we may seek to reallocate some of that capital over time.
Amanda Lombard: Same short NOI was up over 17%, compared to the same quarter last year, reflecting 10 and a half percent revenue growth and our continued efforts to mitigate property level expense inflation. Controllable expenses were up 6.4% quarter over quarter due to higher cost related to the peak leasing season. However, year over year controllable expenses picked up only slightly from 2.6% to 3.9%.
To put it to a higher and better use.
On a more accretive use.
Okay and then on.
On the core can appreciate just the strength in the rent growth in your market and.
What you've done operationally I mean, the numbers are just outsized like can you maybe just give us a sense do you look back over the last few quarters, how much that's really just been the market versus just efforts you've made to hunker down either in change how you price or be more aggressive there or just on the operation side and just trying to understand maybe how much more runway might exist there.
Amanda Lombard: Our non-controllable expenses continue to be variable period to period. This quarter we renewed our property insurance, and while our insurance premiums increased by approximately 30% from the prior year, a reduction in our self insurance based upon our annual review of that program offset the increase. In addition, real estate taxes, as compared to the prior quarter, are up significantly as a result of the $2.7 million favorable adjustment in Q2 related to the resolution of tax. Peel, which was slightly offset this quarter by an increase of half a million dollars related to the finalization of Jersey City 2023 taxes.
That was a big part of this.
It's a great question.
There could be new Jersey.
Overall rental growth during this period it was around 5% that we've come in at 9% I do think.
But the quality of the assets is.
Our second to none and I do believe we have gone a long way towards rebuilding the operational platform with new people new processes, New technology, and that's an ongoing effort. So it's difficult to say how much of that is <unk>.
Amanda Lombard: Next quarter, we expect that non-controllable expenses will be approximately half a penny higher than this quarter on a run rate basis. In regards to our general administrative cost, after adjustments for non-cash stock compensation along with severance payments, GNA was down to $8.7 million for the quarter. The fourth quarter may be slightly higher than the third quarter due to various costs that occur regularly in that quarter. However, overall we remain on track to record the lowest level of GNA in nominal terms in over a decade, and the lowest when adjusted for inflation since the 90s.
How much of it is people how much of it is market.
But the combination on the hall is is what's delivering our results that you'll see and we do feel there's still some room to go down on the operational side to continue.
Improving it's an ever evolving.
Initiative and so.
Amanda Lombard: On to our balance sheet. During the quarter, we entered into a transitional term loan and credit facility to complete the negotiated redemption of rock points preferred interest in various residential trust. The balance of these facilities was repaid in just three months using net proceeds from $122 million, a recently closed non-strategic asset sales, excess proceeds from the refinancing of House 25, and surplus cash flow from our now cash generative operations.
We're fortunate that where we have great assets in.
And great markets with support supply demand dynamics that.
Put us in a very favorable position for the foreseeable future.
We have a team that is highly focused and capable and extracting the value from those assets.
Okay, and just one follow up I think maybe it was perhaps mixing with Nick's question earlier, but where are you sending renewal notices out.
Amanda Lombard: We practically refinanced House 25 for quarter 2020 for maturity at an interest rate of 5.46%, reducing the cost on this loan by 124 basis points. As a result of this, we were able to increase the weighted average maturity of our total debt portfolio from 3.6 to 4 years, while improving our maturity ladder with no more than 23% of our portfolio due in any given year. And an average of 15% maturing per annum over the next five years.
Today.
Okay.
I think you should assume for the next a couple of months.
We'll land up and.
Mid single digit maybe a touch above that level.
Okay. Thank you.
Thank you.
Thank you next question comes from the line of Josh Jennings.
Amanda Lombard: As of October 24th, effectively all of our debt is fixed and are hedged with the latest refinancing, which constituted 14% of our overall debt stack, increasing our weighted average interest rate marginally from 4.4% to 4.5%. While our net debt to EBITDA will remain sensitive to earnings and prone to fluctuation, it is gradually trended down to 12.4 times, pro forma for the recently payment of the transitional loan. As we have prioritized that repayment, having reduced net debt by approximately $1 billion, in addition to the redemption of rock points, $520 million preferred interest since the end of 2020.
But bank of America. Please go ahead.
Yeah, Hey, guys. Thanks for the time just wanted to follow up on that operating platform initiatives that you that you mentioned.
What is the main focus.
That you wanted to improve over the next 12 months and maybe what kind of benefit might we see from our perspective.
Yes.
Well good morning, you've seen already some of the benefits come through in the way. We go about revenue management and the way we go about expense management and so you've seen that in how we price things and driving the top line.
But you've also seen an improvement in our margins year over year.
And and that was really what I was alluding to is that there is I do believe there's still some further room to go and we will update in due course or some of those steps all that we've we've taken or plan to take but they are really centered around continuing to drive the topline.
Amanda Lombard: Looking at how it are upcoming consolidated the maturities, there are set $308 million of mortgages we expected to be refinanced as we move into 2024. While the commercial will state that markets are constrained, there remains demand to lend for high quality multifamily assets like ours, as evidenced by the recent financing. Accordingly, we anticipate utilizing cash flow from operations and proceeds from continued non strategic asset sales to reduce our leverage on these loans as we refinance them to the extent required or is otherwise determined by the board of management.
Optimize and seek to mitigate the expense side of things are doing things.
Differently.
<unk> more efficiently and utilizing technology, where warranted to to help us in achieving all goes bad.
Yeah.
Okay and then.
Amanda Lombard: According to our outlook, as Mahba mentioned, our portfolio's performance has provided us with the flexibility to raise our same-store NOI guidance range through 14 to 15% from 10 to 12%. This is largely driven by higher than expected market rank growth, which we expected to be in the range of 9 to 10%, and better than expected outcomes on insurance and real estate tax renewal. We, Project Expenses, will end the year in the range of 2 to 3%.
I see theres some debt coming due in 2024, I guess, just what's the plan with that debt.
Refi or just pay down or how are you thinking about it and maybe if it's a refi what kind of rate.
Let's see.
Well, you've seen with the two refinancings that we just announced that.
Despite the.
We're gonna stay commercial real estate debt markets being.
Mahbod Nia: This concludes another strong quarter for Veris residential, during which we continue to demonstrate multifamily outperformance and advance the completion of non-sertidic acid cells, while further strengthening our balance sheet.
Challenging at the moment there is still liquidity available then there's appetite to lend on high quality assets, such as ours and so the two assets you're referring to for next year those are.
High quality very well performing properties that we also anticipate.
Operator: With that, we are ready to open the line for a question. Thank you.
Getting attractive.
Operator: We will now be conducting a question about success. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick a headset before pressing the stock.
On and so consistent with our approach this past quarter, you should assume that will be proactive and at the appropriate time.
Look at options available to us to refinance refinance those to the extent that we choose to or or required to somewhat pay down those loans were all set up.
And of strength now in having.
Operator: As a reminder, the first question comes from the line off.
Liquidity available to us today liquidity that we anticipate coming through the closing of our remaining non strategic assets that are under contract and potentially further assets beyond that on the business itself is now cash flow generative and so that gives us another source as well to the extent, we choose to or quiet.
Nick Joseph: Eric Wolfe, from city research, please go ahead. Thanks. It's actually Nick Joseph here with Eric. Maybe you're starting on the operating portfolio. Can you touch on where you are seeing newly straight growth today in October and then where renewals kind of are trending for October and then spent out for November and December? Sure. Good morning, Nick. Thank you for the question. So we said last quarter that we expected rent to moderate.
Do something of a pay down on this.
Right.
Nick Joseph: Now we've had very strong rental growth, double-digit rental growth. That's not sustainable in perpetuity. We indicated that within the mid to high single-digit range going forward, you've seen us coming at the high end of that. I do think that will further moderate to somewhere in the mid to single-digit, which is much more indicative of longer-term growth rates. Thanks. Is there anything you're seeing in terms of rent to income or any other affordability metrics that are impacting that or is it just more normal seasonality and just such coming off of such high-rank growth?
Thank you next question comes from the line of Tom Catherwood with beat the ITU. Please go ahead.
Thanks, and good morning, everybody.
Maybe starting with.
With with Amanda you had mentioned.
Using the remaining or at least some of the remaining proceeds.
For the asset sales that are still under contract as you go to refinance the 300 plus million dollars that are maturing you know when you finish those roughly 71 million of sales that'll punch of roughly at $90 million of cash.
You have all of that earmarked for debt reductions or do you think you'll have some remaining for other sources and uses.
Nick Joseph: Yeah, it's actually the two latter points that you made. So from an affordability standpoint, we actually remain in very good shape. We've seen good income growth. There was always some commentary about that slowing down more generally, but we've seen that sustain at around 15% or even actually slightly below 15% now in terms of rent and net disposable income. It's more a function of you now laughing periods of extremely high rent growth and that's just not sustainable and we've also entered now the seasonally tougher period when it comes to multi-family sector on the whole.
Hi, Tom.
I'll take that if that's okay, and then amount of can chime in.
So.
Today like from a liquidity standpoint, we also have.
The line so is about $90 million of liquidity 17, $1 billion of assets under binding contract today.
The cash flow coming off of the operation in surplus cash flow coming off with the operations, that's adding to that and potentially for other non strategic assets that could be sold between now and next year.
That could further out to that so that's plenty of sources available in the pods.
And I think.
Over these coming.
Nick Joseph: Great. Thanks. And then just on the insurance renewal, can you quantify the reduction in the self-insurance? Sure, this is Amanda. I think as I said earlier, it's about half a penny that you'll see are non-controllable expenses go up next quarter. So I think that's what you can expect. Okay. Thank you.
Months, we'll be working with the board to determine the highest and best use for that capital.
Rates being where they are today.
What.
We assume that debt repayment will be a very accretive.
And appropriate use of.
Any capital that's freed up but that's something that we'll work with the board and so ultimately the time and it could be a combination of things it could be more could go towards debt repayment.
Stephen Sakwa: Next question comes on the line of Steve Sakwa with Evercore ISI, PicoEd. Yeah, thanks good morning. Mahbod, now that you've, I guess, essentially completed, you know, kind of the cleanup of all the non-core assets, Rock Point, you're really down to just, you know, one office property. I guess, how are you sort of looking at the organization as you think about moving forward, you know, as a standalone enterprise, you know, realizing that a monetization event is kind of out of your control.
Got it.
And then my about you'd mentioned moving from the response to Steve's question moving from this transformation period to this optimization period.
When we did.
Think of the rebranding and severance cost the shoes that kind of cycle that you've gone through during the transformation period now that you're in that optimization phase do you think we're closer to that clean G&A run rate or is there still some remaining a rebranding expense that you think is going to run through that line over the coming year.
Stephen Sakwa: But, you know, how are you thinking about the organization, the people in place, and, you know, what else do you need to do to make this a best-in-class apartment company? Good morning, Steve. Thank you. That's a great question and something that we've been giving a lot of thought to ourselves as well. For the last three years, I would describe as the transformation phase where we've sold over $2 billion of non-strategic assets, but only office and really tried to get ahead of that exiting an asset class that has not strategic to us and pivoting to an asset class whereby we continue to believe in the long-term fundamentals and is very much core to our business. There's a little bit more to do as you highlight it in half a size five, and that's not insignificant, given it's an unlevered office building and has substantial equity trapped in it.
Yeah.
It's going to take a little while to settle in and not necessarily a.
Yeah.
In relation to the rebranding, but but more generally just to give you. An example, so repayment of rock point.
We've talked about how that will result in.
Mahbod Nia: But the transformation phase is effectively over. What I would describe this next phase as is the optimization phase. And there we do have a number of levers available to us and a number of initiatives to allow us to now be able to really optimize what we have in this pure-play multi-family platform and organically seek to continue enhancing its value. A number of different prongs to that, and we're evaluating those at this time, working with the board.
Patriot cost savings related to obligations, we had with regards to that partnership.
We will cease to exist.
Going into next year some of those things. It just takes time to work through and actually probably won't really come through into the numbers until back end of next year or second half of next year and then between now and then we also have factors outside of our control such as inflation, which seems to be moderating at this point.
But still has an impact so it's difficult to give you guidance on our run rate G&A, but what I would say is.
It has come down a lot.
We've not brought it down to the lowest level.
And.
A decade and actually in real times since the nineties, if you look at us.
Which is there any appropriate way so that got us given scale is the most significant factor and looking at the various metrics when assessing G&A. If you look at us.
Relative to the mid cap peers as a percentage of gross asset value, which is really the.
The asset base that you have to manage.
We're right right at the median that rents are.
Mahbod Nia: Some of it will involve some further simplification that could touch on corporate structure, capital structure and other areas. A large part of it is capital allocation. If you think about the capital within the business today, there is still significant amounts of equity that is either idle or generating a sub-optimal return for us. And so reallocating that capital to a higher and more creative use really has the potential to continue driving the top line and flow down to the bottom line for us, going forward, given the size of the business.
I think.
Gone a long way potentially have some more to go but also <unk>.
Batting inflation and factors that are outside of our control very.
Very difficult to give you a run rate at this stage.
And the other thing is just the business is not as regards to this optimization phase there'll be pushes and pulls there as well. The reality is that we just haven't reached a mature stage.
As a pure play multifamily company, where you could say right that is.
Hum.
I'm not sure our cost structure the capital allocation side of it has been addressed or the revenue side of it is predominantly going to be driven by by rents and rates. There are still things even not on the capital allocation side. If you're just one do you think about the land, which is just over $200 million at harborside, five and several hundred million dollars as I've met.
Mahbod Nia: There are other areas, potentially, we're looking at a couple of, on the whole, we have a very young portfolio, as you know, but there are one or two areas where we think there could be potential value add opportunities and continued operational efficiencies, all of which together really do have the potential to continue driving or enhancing value of the platform in this next optimization phase.
And in joint ventures that isn't necessarily generating an appropriate return for us, but even between half of slide five and the land that's $300 million it really isn't generating over time and for a company of all size.
That's meaningful having that much idle capital and so I think the primary driver is going to be.
Capital allocation, but other things, we can do as well on the expense side before it reaches a mature state.
Mahbod Nia: But I guess as just maybe a quick follow up, do you feel like you have kind of the right you know, people in place to sort of make all these changes in steps, or do you feel like you still need to add to the organization? No, absolutely not. We've we've got a lean but very effective team as you've seen today. We've gone a long way towards rebuilding your operational side of things as well. So no, I'm very comfortable with the team that we've got that we can execute on this next optimization phase.
As a business and until that is difficult to give that kind of guidance.
Understood I appreciate that and then last one for me.
You know you've obviously been at the forefront when it comes to ESG and integrating that.
And to the company and platform. What's next on the sustainability front, you obviously have a modern portfolio.
But do you have any near term capex plans when it comes to either you know, reducing energy consumption or carbon emissions or anything else along that front.
Stephen Sakwa: Okay, and then you know, there's been some articles about you know, kind of rent control coming up in you know, Jersey City and maybe some of the surrounding communities.
Yeah.
Yeah, everything I would say today the approach remains the same and it's an ever evolving initiative and so everything we've done and everything we continue to do.
Mahbod Nia: Can you maybe just sort of speak to I know it's a very complicated and long-winded answer and longer than this conference call but just maybe high level. How are you sort of thinking about the rent control within kind of the market in your portfolio? And are there things that you need to do to make sure that you know, you follow kind of all the rules and regulations? Are there any risk about rent control being imposed on any part of the portfolio?
We evaluate.
Just on a number of different factors, but ultimately it comes down to return on invested capital.
And so either there's a direct return on invested capital whereby we noted by.
For example, seeking an alternative.
Mahbod Nia: Sure. Look, we believe that we've taken all the necessary and appropriate steps that preserve the available exemptions from rent control ordinances which maybe applicable to the properties in our portfolio. We're an unfortunate position that we have a younger vintage portfolio that helps in that respect and that we've developed most of those assets and so feel comfortable with with the position we're in.
To traditional heating systems that may be that that is a.
Stephen Sakwa: Great, thanks.
Energy savings that result in a pay off of five years or whatever it may be and we'll evaluate whether it makes sense to look at alternatives based on that return on invested capital and pay off periods or.
To a lesser degree it would have an intangible.
But real benefit to the business when it comes to.
Brian.
Pension rates.
And and really differentiates us from from the past. So the approach is actually largely similar to any other capex that we spent.
Stephen Sakwa: That's it for me.
Operator: Thanks, Steve.
Every dollar of Capex that we spend the team presents based on a return on invested capital.
Operator: Thank you.
Anthony Paolone: Next question comes from the line of Anthony Palone with JP Morgan. Please go ahead. Thank you. I guess first question is around non-core. Beyond Harbor Side 5, it does sound like you still have some things that you might consider getting rid of. Can you maybe just talk a bit more about what those might be and where there might even be liquidity that's acceptable to pursue other sales right now in the market?
Approach them reevaluate, whether that's a sufficient return on that capital or not and we make decisions accordingly.
Understood I appreciate the answers thanks, everyone.
Thanks, Tom.
Thank you <unk>.
Next question comes from the line of Robyn <unk> with.
Green Street. Please go ahead.
Hi, good morning.
Just wanted your thoughts on the question on rent control. How are you assessing local municipalities are cranking down on landlords and adherence.
Mahbod Nia: Sure, good morning. Yeah, Harbor Side 5 is the obvious non-strategic one. The question really beyond that is do we seek to potentially further rationalize the land bank which to the extent not developed really is just idle equity again in the business that isn't regenerating returns so that's really what I was primarily referencing with that comment but there are further potential pockets of capital as well if you look at the joint ventures, the remaining joint ventures where we may seek to reallocate some of that capital over time to put it to a higher and better use and a more creative use.
The rent control those I use hearing of policy makers out maybe perhaps looking at putting those out there.
Good morning Robin.
Difficult for me to comment on that I'm. The only thing I can state is what I mentioned idea, which is that we.
We believe we've taken the necessary steps are necessary and appropriate steps to preserve the vehicle exemptions.
From rent control ordinances across our portfolio and so it's a very.
That's a very property specific.
Jurisdiction specific thing townships within New Jersey, Oh, sorry, I can't really comment on what we've done across our portfolio.
Mahbod Nia: Okay, and then on the core, you know, can appreciate just the strength and the the rank growth in your market and what you've done operationally. I mean, the numbers are just outside like can you maybe just give us a sense to look back over the last few quarters? How much of that's really just been the market versus just efforts you've made to hunker down either and change how you price or be more aggressive there or just on the operations side and just kind of understand maybe how much more runway might exist there if that was a big part of It's a great question.
I don't really know it's hard for me to comment on where that goes more.
More broadly.
Okay. Thank you for that and then do you mind, providing color on the preferred interest redemption in October what drives the L. P to redeem at a time when I guess operating fundamentals are still pretty healthy across the portfolio.
Again hard for me to comment on that Robin.
Mahbod Nia: Look, if you look at the New Jersey overall rental growth during this period, it was around 5%, we've come in at 9%. I do think that the quality of the assets is second to none. And I do believe we have gone a long way towards rebuilding the operational platform with new people, new processes, new technology. And that's an ongoing effort. So it's difficult to say how much of that is property, how much of it is people, how much of it is market.
It's that decision you you'd need to ask them.
They've had the ability to redeem and chose to redeem it at this time. So it's hard for me to comment what that related to it would be some sort of.
That's a requirement for the capital from that side, but I'm not sure.
Hello.
So yeah right are you done with your questions.
Yeah. Thank you.
Mahbod Nia: But the combination on the whole is what's delivering the results that you're seeing. And we do feel there's still some room to go there on the operational side to continue improving. It's an ever-evolving initiative. And so we're fortunate that we have great assets in great markets with supply demand dynamics that put us in a very favorable position for the foreseeable future. And we have a team that is highly focused and capable and extracting the value from those assets.
Thank you. Thank you.
This concludes today's question and answer session I would like to turn the floor back over to how 'bout meal for closing comments.
Thank you everyone for joining us today, we're pleased to report another very strong quarter for various residential and look forward to updating you again in due course.
Thank you.
Concludes today's teleconference. You may disconnect your lines at this time, thank you for your participation.
Mahbod Nia: Okay, and just one far, I think maybe it was perhaps mixed in with the next question earlier, but where are you sending renewal notices out today? I think you should assume for the next couple of months will land up in the mid-fingle digit, maybe a touch above that level. Okay, thank you. Thank you.
Okay.
[music].
Joshua Dennerlein: Next question comes from the line of Josh Deneline with Bank of America, please go ahead. Yeah, hey guys, thanks for the time. Just wanted to follow up on that operating platform initiative that you mentioned.
Mahbod Nia: Guess what's the main focus that you want to improve over the next 12 months? What kind of benefit might we see from our perspective? Well, good morning. You've seen already some of the benefits come through and the way we go about revenue management and the way we go about expense management. So you've seen that in how we price things and driving the top line, but you've also seen it in the improvement on our margins year over year.
Mahbod Nia: And that was really what I was alluding to is that there is, I do believe there's still some further room to go, and we will update in due course what some of those steps are that we've taken or planned to take, but they're really centered around continuing to drive the top line, optimize and seek to mitigate the expense side of things, doing things differently, more efficiently, and utilizing technology where we're into it to help us in achieving our goals that. Okay, and then I see there's some debt coming due in 2024.
Okay.
Mahbod Nia: I guess just what's the plan with that debt refire or just pay down or sorry, you think about it, and maybe if it's a refile kind of race. What you've seen with the two refinance things are we just announce that despite the real estate commercial or estate debt markets being challenging at the moment, there is still liquidity available and there's appetite to lend on high quality assets such as ours and so the two assets that you're referring to for next year, those are high quality, very well performing properties that we also anticipate getting attractive fits on and so consistent with our approach.
Mahbod Nia: This past quarter, you should assume that we'll be proactive in the appropriate time. Look at options available to us to refinance those, to the extent that we choose to or require to somewhat pay down those loans, we're also in a position of strength now in having liquidity available to us today, liquidity that we anticipate coming through the closing of remaining non-strategic assets that are under contract and potentially further assets beyond that and the business itself is now cash flow generative and so that gives us another source as well to the extent we choose to or require to do something of a pay down on this.
Operator: Thank you.
Tom Catherwood: Next question comes on the line of Tom Kattowicz with BTIG, please go ahead. Thanks and good morning everybody. Maybe starting with Amanda you had mentioned using the remaining or at least some of the remaining proceeds for the asset sales that are still under contract as you go to refinance the $300 plus million that are maturing.
Mahbod Nia: When you finish those roughly $71 million of sales that'll put you roughly at $90 million a cash, do you have all of that earmarked for debt reductions or do you think you'll have some remaining for other sources and uses? Hi Tom, I'll take that that's okay and then Amanda can chime in. So today from an liquidity standpoint we also have the line so there's about $90 million of liquidity, $71 million of assets on the binding contract today that said there's also cash flow coming off of the operation, surplus cash flow coming off of the operations that's adding to that and potentially further Monterey's or gas sets that could be sold between now and next year that could further add to that.
Mahbod Nia: So there are plenty of sources available in the part and I think over these coming months we'll be working with the board to determine the highest and best use for that capital rates being where they are today, one would rightly assume that debt repayment would be a very creative and appropriate use of any capital that's freed up but that's something that will work with the board to ultimately determine and it could be a combination of things or could we could go towards that repayment? I got it. And then Mahbod, you know, you'd mentioned moving from in the responses to Steve's question, moving from this transformation period to this optimization period.
Mahbod Nia: When we think of the rebranding and severance costs that you've, that kind of cycle that you've gone through during the transformation period, now that you're in that optimization phase, do you think we're closer to that clean GNA run rate, or is there still some, you're remaining a rebranding expense that you think is going to run through that line over the coming year? It's going to take a little while to settle and not necessarily, you know, in relation to the rebranding, but more generally to give you an example, so repayment of rock point.
Mahbod Nia: We've talked about how that will result in anticipated cost savings related to obligations we had with regard to that partnership that will cease to exist going to next year. Some of those things, it just takes time to work through and actually probably won't really come true into the numbers until back end of next year or second half of next year. And then between now and then we also have back to that side of our control such as inflation, which seems to be moderating at this point, but still has an impact.
Mahbod Nia: So it's difficult to give you guidance on a run rate GNA, but what I would say is it has come down a lot. We've now brought it down to the lowest level in a decade and actually in real terms, since the 90s, if you look at us, which is the only appropriate way to look at us given scale as the most significant factor in looking at the various metrics when assessing GNA for look at us.
Mahbod Nia: Relatives to the mid cap is a percentage of gross asset value, which is really the asset base that we have to manage. We're right right at the median there, and so I think gone a long way potentially have some more to go, but also combating inflation and factors are outside of our control. Very difficult to give you a run rate at this stage. And the other thing is just the business is not, as we go through this optimization phase, there'll be pushes and pulls there as well.
Mahbod Nia: The reality is that we just haven't reached a mature stage as a geo-play multi-family company where you could say, right, that is a mature cost structure, the capital allocation side of it has been addressed. So the revenue side of it is predominantly going to be driven by rents and rates. There are still things, even on the capital allocation side, if you just only think about the land, which is just over $200 million and half a slide five, and $700 million, as I mentioned in joint ventures, that isn't all necessarily generating an appropriate return for us.
Mahbod Nia: But even between half a slide five and the land, that's $300 million that really isn't generating a return. And then for a company of our size, that's meaningful, having that much idle capital. And so I think the primary driver is going to be capital allocation, but other things we can do as well on the expense side before, which is a mature state, as a business and until then it's difficult to give that kind of guidance.
Mahbod Nia: Understood, I appreciate that and then last one for me, you know, you've obviously been at the forefront when it comes to ESG and integrating that into the company and platform.
Mahbod Nia: What's next on the sustainability front? You obviously have a modern portfolio, but do you have any near term gapx plans when it comes to either, you know, reducing energy consumption or carbon emissions or anything else along that front? Yeah, everything I would say today, the approach remains the same and it's an ever evolving initiative and so everything we've done and everything we continue to do, we evaluate based on a number of different factors but ultimately it comes down to return on invested capital.
Mahbod Nia: And so either there's a direct return on invested capital whereby we know by for example seeking an alternative to traditional heating systems, maybe that we have energy savings that result in a pay off of five years or whatever it may be and will evaluate whether it makes sense to look at alternatives based on that return on invested capital and pay off periods. Or to a lesser degree, it would have an intangible but real benefit to the business when it comes to brand or retention rates and really differentiates us from the peers.
Mahbod Nia: So the approach is actually largely similar to any other capex that we spend every dollar of capex that we spend the team presents based on a return on invested capital approach and we evaluate whether that's a sufficient return on that capital or not and we made decisions accordingly.
Tom Catherwood: Understood and appreciate the answers, my bad, thanks everyone.
Operator: Thanks, Tom.
Operator: Thank you.
Robin Lou: Next question comes from the line of Robin Lou with Green Street please go ahead. Hi, good morning. I want to get back to the question on rent control. Are you sensing local municipalities are cranking down on landlords and they're adherent to rent control rules? Are you hearing the policy makers of maybe perhaps looking at tiny rules further? Good morning, Robin.
Mahbod Nia: Difficult for me to comment on that. The only thing I can state as I mentioned earlier which is that we believe we've taken the necessary steps, the appropriate steps to preserve the available exemptions from rent control ordinances across our portfolio. And so it's a very, that's a very property specific and and jurisdiction specific thing townships within you Jersey. So I can only comment on what we've done across our portfolio. I don't really know. It's hard for me to comment on where that goes more broadly. Okay, thank you for that.
Robin Lou: And then do you mind providing color on the preferred interest redemption in October? What drove the LP to redeem at a time when I guess operating fundamentals are pretty healthy across your portfolio?
Mahbod Nia: Again, hard for me to comment on that, Robin. It's their decision. You'd need to ask them. They've had the ability to redeem and chose to redeem it at this time, so it's hard for me to comment what that related to.
Mahbod Nia: It would be some sort of, I guess, a requirement for the capital from there, so I'm not sure.
Operator: Hello? Are you done with the questions? Yeah, thank you. Thank you.
Operator: This concludes today's question and answer session.
Mahbod Nia: I would like to turn the floor back over to Mahbod Nia for closing comments.
Mahbod Nia: Thank you, everyone, for joining us today. We're pleased to report another very strong quarter for Veris Residential, and look forward to updating you again in due course.
Operator: Thank you.
Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.