Q2 2024 Veris Residential Inc Earnings Call

Speaker Change: A brief question and answer session will follow the formal presentation.

Speaker Change: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Taryn Fielder, General Counsel. Thank you, Ms. Fielder. You may begin.

Taryn D. Fielder: Good morning, everyone, and welcome to Veris Residential's second quarter 2024 Earnings Conference Call. I would like to remind everyone that certain information discussed on this call may constitute forward-looking statements within the meaning of the federal securities law. Although we believe the estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved. We refer you to the company's press release and annual and quarterly reports filed with the SEC for risk factors that impact the company. With that, I would like to hand the call over to Mahbod Nia, Veris Residential's Chief Executive Officer, who is joined by Amanda Lombard, Chief Financial Officer. Thank you, Mahbod.

Taryn D. Fielder: and Taryn Fielder.

Taryn D. Fielder: Good morning, everyone, and welcome to Veris Residential's second quarter 2024 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.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: 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?

Mahbod Nia: Thank you, Taryn, and good morning, everyone. The second quarter marked another period of strong operational and financial results for Veris, reflecting continued progress across a number of initiatives aligned with our three-pronged value creation plan. This is reflected in our decision to raise guidance once again, which Amanda will discuss in further detail. As of June 30th, the portfolio was 95.1% occupied and continues to perform well, with 5% blended net rental growth and 5.9% NOI growth in the first half of this year.

Mahbod Nia: Thank you, Taryn, and good morning, everyone.

Mahbod Nia: The second quarter marked another period of strong operational and financial results for Veris, reflecting continued progress across a number of initiatives aligned with our three-pronged value creation plan.

Amanda E. Lombard: This is reflected in our decision to raise guidance once again, which Amanda will discuss in further detail.

Amanda E. Lombard: As of June 30th, the portfolio was 95.1% occupied and continues to perform well, with 5% blended net rental growth and 5.9% NOI growth in the first half of this year.

Mahbod Nia: In an effort to further optimize our balance sheet, we secured a new $500 million credit facility and term loan in April and reduced our overall debt outstanding by $168 million during the quarter, primarily using proceeds from non-strategic asset sales. Looking more closely at our operational performance, occupancy was 100 basis points above March 31, at 95.1%, as we continue to seek the optimal balance between occupancy and revenue growth. Our Class A portfolio realized 5% blended net rental growth in the first half of the year, continuing to build on two consecutive years of strong growth.

Amanda E. Lombard: In an effort to further optimise our balance sheet, we secured a new $500 million credit facility and term loan in April and reduced our overall debt outstanding by $168 million during the quarter, primarily utilising proceeds from non-strategic asset sales.

Amanda E. Lombard: Looking more closely at our operational performance.

Amanda E. Lombard: claims to occupancy was 100 basis points above March 31 at 95.1% as we continue to seek the optimal balance between occupancy and revenue growth.

Amanda E. Lombard: Our Cartier portfolio realized 5% blended net rental growth in the first half of the year, continuing to build on two consecutive years of strong growth.

Mahbod Nia: Net blended rental growth increased from 4.6% in the first quarter to 5.4% in the second quarter, driven by increases of 6.4% in renewals and 4.2% in new leases. Today, our properties continue to command a significant rent premium of approximately 40% compared to our industry peers, with an average revenue per home of over $3,900, an increase of 22% over the last two years, reflecting the quality of our highly immunized, comparatively young vintage of approximately eight years, and well-located Class A portfolio. Affordability remained healthy, with an average rent to income ratio of around 12% in the second quarter.

Amanda E. Lombard: Net blended rental growth increased from 4.6% in the first quarter to 5.4% in the second quarter, driven by increases of 6.4% in renewals and 4.2% in new leases.

Amanda E. Lombard: Today, our properties continue to come under significant rent premium of approximately 40% compared to our industry peers, with an average revenue per home of over $3,900, an increase of 22% over the last two years.

Amanda E. Lombard: reflecting the quality of our highly immunized, comparatively young vintage of approximately eight years and well-located Class A portfolio.

Amanda E. Lombard: Affordability remained healthy with an average rent-to-income ratio of around 12% in the second quarter.

Mahbod Nia: Our Port Imperial and Jersey City waterfront properties continue to outperform the broader portfolio, benefiting from their proximity to Manhattan, as well as limited new supply and a new stock market. We've also seen significant improvement in new lease rental growth rates across our East Boston properties, which represent a compelling relative value proposition compared to downtown Boston and the seaport. We remain focused on our ongoing pursuits of operational excellence, leveraging innovative solutions including new technologies, operational enhancements, and changes to our organizational structure and processes as we seek to identify additional efficiencies and further enhance our platform.

Amanda E. Lombard: Our Port Imperial and Jersey City waterfront properties continue to outperform the broader portfolio, benefiting from their proximity to Manhattan, as well as limited new supply in these sub-markets.

Speaker Change: We've also seen significant improvement in new lease rental growth rates across our East Boston properties, which represent a compelling relative value proposition compared to downtown Boston and the seaport.

Amanda E. Lombard: We remain focused on our ongoing pursuit of operational excellence.

Amanda E. Lombard: leveraging innovative solutions including new technologies, operational enhancements, and changes to our organizational structure and processes as we seek to identify additional efficiencies and further enhance our platform.

Mahbod Nia: These operational efforts have contributed to a steady increase in our operating margin, which now stands at 66 percent, up from 57 percent three years ago. Our AI-based leasing assistant, Quinn, continues to be highly effective in capturing demand at the top of our leasing funnel, effectively converting leads while allowing us to make payroll decisions. In the second quarter, Quinn converted more than 34% of these into tours, more than double the industry average, answering over 60,000 messages, and saving over 5,000 staff hours.

Amanda E. Lombard: These operational efforts have contributed to a steady increase in the operating margin, which now stands at 66 percent, up from 57 percent three years ago.

Amanda E. Lombard: Our AI-based leasing assistant, Quinn, continues to be highly effective in capturing demand at the top of our leasing funnel.

Amanda E. Lombard: effectively converting leads while allowing us to realize payroll efficiencies.

Amanda E. Lombard: In the second quarter, Quinn converted over 34% of leads into tours, more than double the industry average, answering over 60,000 messages and saving over 5,000 staff hours.

Mahbod Nia: In addition, we have leveraged our AI capabilities to continue enhancing the resident experience at Veris. Quinn is now available to all residents 24-7 and is capable of answering a wide range of inquiries as well as managing maintenance requests.

Amanda E. Lombard: In addition, we have leveraged our AI capabilities to continue enhancing the residence experience at Veris.

Amanda E. Lombard: Quinn is now available to all residents 24-7 and is capable of answering a wide range of inquiries as well as managing maintenance requests.

Mahbod Nia: In June, we introduced a new portfolio-wide rent payment platform, BILT, which allows residents to earn reward points that can be spent on hotels, flights, restaurants, and more with every rent payment. On the capital allocation front, earlier in the quarter, we closed the sale of 107 Morgan Street, as well as two land sites, 6 Becker and 85 Livingston, in suburban New Jersey, releasing approximately $78 million of net proceeds, which was used to repay debt.

Amanda E. Lombard: In June , we introduced a new portfolio-wide rent payment platform, BILT, which allows residents to earn reward points that can be spent on hotels, flights, restaurants, and more with every rent payment.

Speaker Change: On the capital allocation front, earlier in the quarter, we closed the sale of 107 Morgan Street, as well as two land sites, 6 Becker and 85 Livingston in suburban New Jersey, releasing approximately $78 million of net proceeds, which was used to repay debt.

Mahbod Nia: With our transformation complete, we continue to look for optimization opportunities through capital reallocation within the company. To that end, our $187 million land bank and interest in unconsolidated multifamily joint ventures remain a considerable source of inefficient equity. The ability to unlock and reallocate some or all of this capital over time has the potential to significantly enhance the company's earnings and leverage profile. One of these land parcels, Harbourside 9, recently gained approval for future development from the Jersey City Planning Board as part of our pre-development efforts to enhance the valuation of our land bank.

Speaker Change: With our transformation complete, we continue to look for optimization opportunities through capital reallocation within the company.

Speaker Change: To that end, our $187 million land bank and interest in unconsolidated multi-family joint ventures remain a considerable source of inefficient equity.

Speaker Change: The ability to unlock and reallocate some or all of this capital over time has the potential to significantly enhance the company's earnings and leverage profile.

Speaker Change: One of these land parcels, Harbourside 9, recently gained approval for future development from the Jersey City Planning Board as part of our pre-development efforts to enhance the valuation of our land bank.

Mahbod Nia: I'd like to address our decision to withdraw the company's recent public offering of common stock and proposed acquisition of 55 Riverwalk Place. While this strategic and accretive transaction would have strengthened our position in one of our core markets, Port Imperial, and further de-leveled our balance sheet, we decided not to proceed given the unintended signalling that the board and management team may seek to prioritise external growth at the expense of, rather than in parallel The primary focus of the management team is the creation of value through the three-pronged approach we announced at the beginning of the year, in parallel and consistent with past practice.

Speaker Change: I'd like to address our decision to withdraw the company's recent public offering of common stock from proposed acquisition of 55 River Walk Place.

Speaker Change: While this strategic and accretive transaction would have strengthened our position in one of our core markets, Port Imperial.

Speaker Change: And further de-levelled our balance sheet, we decided not to proceed given the unintended signalling that the board and management team may seek to prioritise external growth at the expense of, rather than in parallel with, a comprehensive spectrum of strategic and organic value creation opportunities.

Speaker Change: The primary focus of the management team is the creation of value through the three-pronged approach we announced at the beginning of the year.

Mahbod Nia: The Board and Strategic Review Committee will continue to evaluate all credible opportunities to maximize value on behalf of shareholders. Before I hand over to Amanda, I'm pleased to show our progress in reducing emissions and earning green certification. Our Scope 1 and 2 emissions were 66% below our 2019 baseline. We are one of the few companies to measure almost all of our operational Scope 3 missions, which have decreased by 22% from 2022.

Speaker Change: in parallel and consistent with past practice.

Speaker Change: The Board and Strategic Review Committee will continue to evaluate all credible opportunities to maximize value on behalf of shareholders.

Mahbod Nia: Simultaneously, we increased the share of green certified buildings in our portfolio to 78%. Our new credit facilities include sustainability KPI provisions, which the company successfully met in July, and will result in a five basis point margin saving on the facility. With that, I'm going to hand it over to Amanda, who will discuss our financial performance and provide an update on guidance.

Speaker Change: Before I hand over to Amanda, I'm pleased to show our progress in reducing emissions and earning green certifications. Our Scope 1 and 2 emissions were 66% below our 2019 baseline.

Amanda E. Lombard: We are one of the few companies to measure almost all of our operational scope 3 missions, which have decreased by 22% from 2022.

Amanda E. Lombard: Simultaneously, we increased the share of green-certified buildings in our portfolio to 78%.

Speaker Change: Our new credit facilities include sustainability KPI provisions, which the company successfully met in July , and will result in a five basis point margin saving on the facility.

Speaker Change: With that, I'm going to hand it over to Amanda, who will discuss our financial performance and provide an update on guidance.

Amanda E. Lombard: Thank you, Mahbod. For the second quarter of 2024, net income available to common shareholders was $0.03 per fully diluted share versus a net loss of $0.30 for the same period in the prior year. Cora for Poper's share was $0.18 for the second quarter, compared to $0.14 for the previous quarter and $0.16 for the second quarter of 2023. Core FFO this quarter is up four cents compared to the first quarter, driven primarily by three factors, including the receipt of the annual IRBY tax credit of $2.6 million.

Amanda E. Lombard: Thank you, Mahbod. For the second quarter of 2024, net income available to common shareholders was $0.03 for fully diluted share versus a net loss of $0.30 for the same period in the prior year.

Speaker Change: Koroff of Hoper's share was $0.18 for the second quarter, compared to $0.14 last quarter and $0.16 for the second quarter of 2023.

Speaker Change: Core FFO this quarter is up four cents compared to the first quarter, driven primarily by three factors, including the receipt of the annual IRBI tax credit of $2.6 million, the

Amanda E. Lombard: An additional $1 million in interest income from cash on hand and another $1 million from the recognition of a successful real estate tax appeal for Harborside 1, 2, and 3, which we sold last year. Excluding non-recurring interest income and sold office NOI, our core FFO is broadly in line with the first quarter. Same sort NOI growth for the six months ended June 30th, 2024 was 5.9%. For the quarter, Samestore NOI was off by 1.4%, in line with our expectations, as we lagged the recognition of the successful real estate tax appeals on two Jersey City assets.

Speaker Change: an additional $1 million in interest income from Cash on Hand and another $1 million from the recognition of a successful real estate tax appeal for Harborside 1, 2, and 3, which we sold last year.

Speaker Change: Excluding non-recurring interest income and sold office NOI, our core FFO is broadly in line with the first quarter.

Speaker Change: Same-sort NOI growth for the six months ended June 30, 2024, with 5.9%.

Amanda E. Lombard: Normalizing NOI for the impact of the appeals, same-store NOI growth would have been 3% for the quarter and 8% year-to-date. On the revenue side, year-to-date same-store revenues are up 6.9 percent, driven by continued strong rental revenue growth. Excluding the impact of a retail lease termination fee recognized over the first half of 2024, same-store rental income growth would have been approximately 6%. This quarter, we have begun to take units offline at Liberty Towers as we commence renovations as part of our value-add project, which will have a temporary impact on NOI in the coming quarter.

Amanda E. Lombard: This is reflected in our updated guidance, which I will discuss momentarily. Moving to the expense side of the equation. Total property expenses were up 8.8% year to date, in line with our guidance and expectations as we lapped the recognition of the 2023 tax appeal. Normalizing total property expenses to exclude the impact of these appeals would have resulted in 5% expense growth. Controllable expenses are up year-to-date 4.7% as the second quarter saw a higher volume of lease turns, driven by House 25 as it reached the anniversary of its stabilization, and the first generation lease is expired.

Amanda E. Lombard: These costs are offset by the impact of various portfolio optimization initiatives, such as the centralization of leasing roles, as well as our increased utilization of AI-based solutions, which has contributed to flat year-over-year payroll expenses. Turning to GNA,

Amanda E. Lombard: After adjustments for non-cash stock compensation and severance payments, core G&A was $8.7 million, an improvement of 8%, primarily due to lower compensation-related costs in the second quarter. Now on to our balance sheet. As of June 30th, nearly all of our debt was fixed and or hedged with a weighted average maturity of 3.1 years and a weighted average effective interest rate of 4.5%. Our net set to Ibiza for the trailing 12 months was 11.8 times.

Speaker Change: G&A was $8 $7 million, an improvement of 8%, primarily due to lower compensation related costs in the second quarter.

Speaker Change: Now onto our balance sheet.

Speaker Change: As of June 30th nearly all of our debt was fixed and are hedged with a weighted average maturity of three one years and a weighted average effective interest rate of four and a half or so.

Speaker Change: Our net debt to EBITDA for the trailing 12 months is 11.8 time.

Amanda E. Lombard: As noted last quarter, in April, we closed on a new $500 million Senior Secured Delayed Draw Charm Loan in Revolver with a three-year tenor and a one-year extension option. During the quarter, we repaid two mortgages for $219 million and drew $55 million on the new term loan. Concurrently, we entered into a three-and-a-half percent strike, two-year interest rate cap to hedge the full notional. We also replaced an expiring cap on our Riverhouse 9 mortgage with another 3.5% strike, two-year rate cap. Two additional mortgages will mature this year, and as each mortgage becomes eligible for repayment, we will draw first from the term loan and then partially on the revolver.

Speaker Change: As noted last quarter in April we closed on a new 500 million dollar senior secured delayed draw term loan and revolver with a three year tenor and a one year extension option.

Speaker Change: During the quarter, we repaid two mortgages were $219 million and drew $55 million on the new term loan.

Speaker Change: Concurrently we entered into a three and a half per cent strike two year interest rate cap. It has the full notional.

Speaker Change: We also replace an expiring cap on our warehouse nine mortgage with another three and a half per cent strike two year rate cap.

Speaker Change: Two additional mortgages will mature this year and as each mortgage becomes eligible for repayment. We will draw first from the term loan and then partially on the revolver.

Speaker Change: As Bob mentioned, we are raising our core <unk> guidance range by approximately 4% or two pennies to 52 cents to 56 cents per share.

Amanda E. Lombard: As Mahbod mentioned, we are raising our core FFO guidance range by approximately 4% or two pennies, $.252, $.256 per share, reflecting the impact of two nonrecurring items, including one cent of greater than projected deposit income as a result of higher interest rates and average cash balances in the second quarter as asset sales closed sooner than anticipated, and one cent of other income as a result of the recognition of successful real estate tax appeals, net of recover We are also revising our same SOAR expense growth guidance range from 5 to 6 percent to four and a half to five and a half percent, reflecting favorable initial indications for insurance and real estate taxes, which will reset in the second half of the year, as well as additional cost savings from the Continued Operational Initiative.

Speaker Change: Reflecting the impact of two nonrecurring items.

Amanda E. Lombard: Including one fan of greater than projected deposit income.

Bob: Result of higher interest rates and average cash balances in the second quarter as asset sales closed sooner than anticipated.

Speaker Change: And one thing that the other income as a result of the recognition of successful real estate tax Appeals net of recoveries on the sold Harborside office properties.

Speaker Change: We are also revising our same store expense growth guidance range from 5% to 6%.

Speaker Change: Q4, and a half to five 5%.

Speaker Change: Reflecting favorable initial indications or insurance and real estate taxes.

Speaker Change: Which will reset in the second half of the year.

Speaker Change: As well as additional cost savings from continued operational initiatives.

Speaker Change: Our improved expectations for expenses supporting increasing the bottom end of our same store NOI range.

Amanda E. Lombard: Our improved expectations for expenses support an increase in the bottom end of our same-sort NOI range from 2.5% to 3%. The top end of guidance remains unchanged at 5%, as we are expecting to commence unit renovations on our value-add project at Liberty Towers and expect some temporary impact on NOI, as we discussed earlier. As we round out another strong quarter, Veris represents an extremely compelling value proposition. The highest quality and newest Class A multifamily properties located in established markets in the Northeast, commanding the highest average rent and growth rate among peers, with limited near-term supply and high barriers to entry, managed by our vertically integrated, best-in-class operating platform. With that, Operator, please open the line for questions.

Speaker Change: Two 5% to 3%.

Speaker Change: The top end of guidance remains unchanged at 5% as we were expecting to commence unit renovations on our value add projects at Liberty towers and.

Speaker Change: And expect some temporary impact on NOI as we discussed earlier.

Speaker Change: As we round out another strong quarter ferrous represents an extremely compelling value proposition.

Speaker Change: Highest quality and newest class a multifamily property located in established markets in the northeast.

Speaker Change: The highest average rents and growth rate among peers with limited near term supply and high barriers to entry managed by our vertically integrated best in class operating platform.

Speaker Change: With that operator, please open the line for questions.

Speaker Change: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Operator: Thank you. We will now be conducting a question-and-answer session. 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 up your handset before pressing the start button. One moment, please, while we poll for questions. The first question comes from the line of Joshua Dennerlein with Bank of America. Please go ahead.

Speaker Change: Inflammation tone will indicate your line is in the question queue.

Speaker Change: Start to if you would like to remove your questions from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star one.

Speaker Change: One moment, please while we poll for questions.

Speaker Change: The first question comes from the line of Josh <unk> with Bank of America. Please go ahead.

Stephen Thomas Sakwa: Hi, this is Stephen Song on for Josh. Thanks for your time. And then the first question I have is on the July leasing updates. Do you have a number for the blended new and renewal?

Speaker Change: Hi, This is Steven on for Josh.

Steven: Thanks for the time and then the first question I have is on the <unk> of July leasing updates do you have a number for the blended new and renewal.

Speaker Change: Good morning.

Mahbod Nia: Good morning, thank you for the question. We do, I would say it's a touch above the mid-single digits, so around about 6% for July.

Speaker Change: Thank you for the question, we do I would say, it's a touch above the mid single digits. So roundabout, 6% for July.

Speaker Change: So this is a blended rate.

Stephen Thomas Sakwa: So that's blended, right?

Mahbod Nia: 6% blended. There's been a skew obviously towards renewals over new leases, although that gap has narrowed since the beginning of the year. But yeah, around 6% is where we're expecting to land up.

Speaker Change: So example in the there's been a skew obviously towards our renewals are over.

Speaker Change: When your leases, although that gap has narrowed since the beginning of the year, but yeah around 6%. That's why we're wherever I expect them to lock up this month.

Speaker Change: All right got it Thanks, and then my second question is.

Stephen Thomas Sakwa: Alright, I got it. Thanks.

Speaker Change: The same store expense guidance are you know.

Stephen Thomas Sakwa: And then my second question is on the SimStore expense guidance. In the supplemental, you said there was a favorable initial indication of insurance and real estate taxes. Can you maybe provide more color on that? Like, what do you see on the two fronts?

Speaker Change: The supplemental you said there is a fair favorable initial indication of all of our insurance and real estate taxes can you maybe provide more color on that like what do you see on the two fronts.

Speaker Change: Yeah, it's it's a little bit on the especially on the talk side because of that.

Amanda E. Lombard: Yeah, it's a little bit early, especially on the tax side, because there we don't really have clarity until the latter part of Q3, but certainly given what we've seen in terms of increases in the tax rate, particularly the year before last, we would expect that, hopefully, to be not as material as it has been. On the insurance side, I think we'd built in an assumption into guidance that, again, reflected where we've seen insurance premiums go over the last couple of years, and certainly looking at some of the peers and what they've been experiencing and some early, some initial indications, or an early indication, rather I should say, for ourselves, the number seems to be surprising to the upside this year. And so we've made a minor adjustment to reflect that.

Speaker Change: We don't really have clarity until the lots of parts of Q3, but certainly given what we've seen in times of a tax increases in attach rate.

Speaker Change: Particularly yeah before last we would expect that to be not as material as it had been on the insurance side I think now we'd we'd built in an assumption into guidance that again reflected wherever you've seen insurance premiums gone over the last couple of years.

Speaker Change: And suddenly you're looking at.

Speaker Change: Some of the peers and what they've been experiencing and somebody some initial indications or an initial indication rather I should say for ourselves the number seems to be surprising to the upside.

Speaker Change: This year right and so we made them.

Speaker Change: The adjustment to reflect that.

Speaker Change: Okay got it. Thank you that's all for me.

Stephen Thomas Sakwa: Okay, I got it. Thank you. That's all for me.

Speaker Change: Thank you for the question.

Speaker Change: Thank you next question comes from the line of Steve Shukla with Evercore ISI. Please go ahead.

Operator: Thank you. The next question comes from the line of Steve Sakwa with Evercore ISI. Please go ahead.

Speaker Change: Okay.

Sanket: Hi, good morning. This is Sanket filling in for Steve.

Speaker Change: Hi, Good morning. This is sung Kim filling in for Steve.

Sanket: Morning, as you mentioned that the blended lease rates for July are passing in touch about mid-single digits, and then you've done 7% revenue growth in the first half of the year, and you're now guiding to 4.5% in terms of sensor revenue growth. Can you help us think through what you're thinking in terms of the second half of the year, like your expectations around the second half of the year for revenue?

Sung Kim: You mentioned Oh Mani so as you mentioned that the blended lease rates for July you're bussing in touch about me mid single digits, and then you've done 7% revenue growth in the first half all day and you've got you are guiding to flatten off.

Speaker Change: In terms of same store revenue growth can you help us think through how it would be our thinking in terms of a second half of the year like the expectations around second half of the year for the revenue.

Speaker Change: Sure. Thank you for the question so.

Mahbod Nia: Sure. Thank you for the question.

Mahbod Nia: For this quarter, we posted year-to-date revenue growth of 6.9%, and in there are two one-time items in the first half of the year. So we had termination fee income, which we recognized throughout the first half. And then we also had, in the first quarter, House 25, as we noted last quarter, lapped the period when it was stabilizing. And so those two factors together represent about 250 basis points of the revenue growth that we're posting right now. And so if you back that out of the 6.9, you get to about 4.3%, which is right in the middle of our guidance range.

Mahbod Nia: For this quarter, we posted a year to date revenue growth of six 9%.

Speaker Change: And in there there are two one time items in the first half of the year. So we had termination fee income which is recognized throughout the first half and then we also had a in the first quarter past 'twenty five as we noted last quarter lap.

Speaker Change: The period when it was stabilizing and so those two factors together combined.

Speaker Change: Represent about 250 basis points of the revenue growth that we're posting right now and so if you back that out of the 6.9, you get to about four 3%, which is right in the middle of our guidance range.

Speaker Change: Okay and then on the.

Sanket: And then on the expense side, R&M and property taxes, which are like major components of their expenses, have grown a lot in the first half of the year. So how should we think about that in the second half of the year?

Speaker Change: <unk> side, R&M and property taxes, which are like immediate confidence all of their expenses they've grown a lot in the first half of the year, how do how should we think about that in the second half of the year.

Amanda E. Lombard: So, for R&M, that is elevated this quarter as, as I just said, how stabilized in the first quarter of last year. And so, as a result, we had an elevated amount of leases, like roughly twenty-five percent of the leases that turned in the first quarter. And so there is a higher number of Lisa's turning overall for the portfolio, and that drove up turn costs, which went through repair and maintenance in the second quarter.

Speaker Change: So for R&M.

Speaker Change: That is elevated this quarter as well.

Speaker Change: And they just had how stabilize in the first quarter of last year and so as a result, we had an elevated amount of leases it was like roughly 25% of those leases.

Speaker Change: That turned into first quarter and so there is a higher number of.

Amanda E. Lombard: So that's what's driving that. I think as you look into the second half of the year for that line item, you should see a more normalized figure. And then in terms of real estate taxes, as Mahbod just said, that resets in the second half of the year, in the third quarter for us. And so when we know more, we'll have more to share there.

Sanket: Okay. Thank you. That's it for me. Thank you.

Operator: Thank you. The next question comes from the line of Eric Wolfe with Citi. Please go ahead. Hey, thanks. Can you talk about what's going on?

Eric Wolfe: Hey, thanks. Can you talk about what's driving the sequential drop in core FFO between the second quarter and the third quarter? It looks like you're expecting around a 7 million drop based on your guidance. So just want to confirm that. And then maybe point out the items that are taking you down by 7 million.

Eric Wolfe: Sorry, can you repeat the question again?

Eric Wolfe: Yeah, hopefully you can hear me, but... You know, based on your guidance, there's

Speaker Change: In the third quarter and core episode from the second quarter and so I was trying to understand you know what is causing that drop it looks like around $7 million based on your guidance.

Speaker Change: So and the second question Sorry go ahead in the second quarter of course, that's all we have $4 million roughly our four cents of onetime items that occurred about $2 6 million of it is related to the early tax credit that's reoccurring, we recognize that every year.

Amanda E. Lombard: So in the second quarter, in the second quarter of CORE FFO, we have $4 million, roughly, or four cents of one-time items that occurred. About $2.6 million of it is related to the Irby tax credit, which is reoccurring.

Amanda E. Lombard: We recognize that every year, but it's all recognized in this quarter. And then the other two items that we're seeing are You know, $1 million related to higher interest expense from having higher cash balances. And then we expect to have no excess cash on deposit in the third quarter as we've utilized all of our cash for debt repayment. The other factor is real estate tax appeals. We had a successful resolution there for some of the sold harborside assets, and so that was recognized in this quarter as well.

Speaker Change: But its all recognized in this quarter and then the other two items that were seeing are.

Speaker Change: You know $1 million related to higher interest expense from having higher cash balances and then and we expect to have no excess cash on deposit in the third quarter.

Speaker Change: Utilize all of our cash for debt repayment.

Speaker Change: And then.

Speaker Change: The other factor is real estate tax Appeals, we had a successful resolution there for some of the salt harvest that assets and so that was recognized in this quarter as well.

Speaker Change: Okay.

Eric Wolfe: Okay. I guess why would interest expense go up in the third quarter? I guess I would think that, you know, you held on cash longer, and presumably paid off debt later, that would make interest expense go down relative to the quarterly run rate. And then, I guess, the second part of the question is, you know, you got into kind of like 11 cents per quarter. Is that like the right run rate to think about going into next year, or is there something that would cause that to sort of go up in the first half of next year? I guess you mentioned 4 cents that you see on a recurring basis each year in the first half that you don't see in the second. Okay, so first off... Interest income is the driver.

Speaker Change: I guess why would interest expense go up in the third quarter I guess I would think that you know you've held on cash longer presumably paid off debt later that would make interest expense go down relative to the quarterly run rate and then I guess the second part of the question is as you got into kind of like 11 cents per quarter.

Speaker Change: Is that like the right runway run.

Speaker Change: Run rate to think about going into the next year or is there something that would.

Amanda E. Lombard: Okay, so, first off, interest income is the driver of the one cent variance for this quarter, and that's not interest expense. [inaudible] And then, in terms of your question. On. Sorry, hold on one second. Yeah, and then in terms of the remainder of the year. We haven't provided any guidance, so I don't have anything to say about the run rate for next year. I don't know, Mahbod, if you want to add anything.

Mahbod Nia: want to add anything. Yeah, no, sorry, just to add, I think, as Amanda said, We had a number of one-time items that meant that this quarter looks particularly strong, and we reflected the four-year guidance to reflect that. But, you know, every tax credit, interest income on cash balances that were higher than initially expected because we sold non-strategic assets or completed those sales sooner than expected, and then rates also that we earn on that cash on deposit remain, higher for for longer and then we had these successful tax appeals and so that's all what really made this quarter particularly strong at the 18 cents but On the revenue side, we, reiterate the guidance that we put out there last quarter and I think that still very much reflects on a four-year basis our current expectations of the operational outlook for the business.

Speaker Change: Cash on deposit remained.

Speaker Change: Higher for for longer.

Speaker Change: These successful tax appeals and so that's what really made this quarter, particularly strong at the 18 cents, but.

Speaker Change: On the revenue side we.

Speaker Change: Reiterate the guidance that we put out there last quarter and I think that's still very much reflects on a full year basis, our current expectations of the operational outlook for the business.

Mahbod Nia: Where this has an impact is a slight impact on the expense side, which we've talked about there, just given early indications of where we think insurance will come out in particular. And then on the chiffre per share basis, where you're seeing really just the direct increase of two cents reflected in those one-time items that I mentioned.

Speaker Change: This has an impact is.

Speaker Change: Slight impact on the expense side, which we've talked about that just given all of the indications of why we think insurance will come out.

Speaker Change: In particular.

Speaker Change: And then on the quantify par share basis, where youre seeing really just a direct increase of two cents reflected to those one time items.

Speaker Change: And.

Speaker Change: Right.

Eric Wolfe: That's helpful. And then, I guess I'm thinking about, um.., future acquisitions or opportunities to leverage through equity-funded transactions. I mean, has your thinking changed there at all going forward? off the table, will you require a larger spread, just trying to understand if your thoughts have changed, sort of how it's informing your strategy going forward.

Speaker Change: That's helpful and then.

Speaker Change: I guess I'm thinking about.

Speaker Change: Future acquisitions or opportunities to deleverage through through equity funded transactions I mean has your thinking changed there at all going forward. As you know is it off the table, where you require a larger spread just just trying to understand if your thoughts have changed and sort of how it's informing your strategy going forward.

Speaker Change: Yeah.

Speaker Change: Yeah look I think suddenly.

Mahbod Nia: Yeah, look, I think certainly, and in my remarks earlier, I mentioned that while there were many merits to this particular transaction, it was highly strategic, it was opportunistic, we actually built the asset and used to manage it until recently. It was accretive, and it would have allowed us to be leveled by about a term. We made the decision not to move forward because, Wow, incrementally enhancing the value of this entity through an improvement in all the metrics that I just mentioned, it was incremental and also seemed to provide this unintended signaling that we may be prioritizing growth at the expense of but not necessarily in parallel with the wide spectrum of value creation opportunities that the board evaluates on a real-time basis as opportunities to continue creating and actualizing value for Charlotte.

Speaker Change: <unk> remarks earlier I mentioned that while there are many merits to this particular transaction.

Speaker Change: It was highly strategic it was opportunistic we actually built the outside and I used to manager until recently it was accretive and would have allowed us to delever by by the time, we made the decision not to move forward because.

Speaker Change: While incrementally enhancing the value of it.

Mahbod Nia: So I think that said, it's unlikely that we were, transactions that incrementally are agreed to the platform going forward at this time. Another way of saying, sorry, if we did anything, it's more likely to be, I'd say, strategic and more transformational. But that's not available to the site.

Operator: Thank you. The next question comes from the line of Tom Catherwood with PTIG. Please go ahead.

Tom Catherwood: Thank you. Good morning, everybody.

Mahbod Nia: Mahbod, let me start with you, and this kind of ties to your response to the former question, but you mentioned approvals at Harborside 9 recently. Are you evaluating the potential for further near-term investment at that site? And are there other assets in your land bank where you're pursuing entitlements to get them shovel ready?

Tom Catherwood: Morning, Tom. Good question.

Mahbod Nia: The announcement of Harbourside 9 was really, and I think it got a bit of media attention because it's a larger and quite a prominent site. I'd say Harbourside 8 and 9 are probably the best two remaining land sites in Jersey City. That was the result of the work that the team had been doing for the past, well, forever, actually, but certainly, you know, since I've been at Harman for the last two, four years across all of our land sites, progressing along that path to get them to a point where they're shovel-ready because, obviously, every...

Speaker Change: That was the result of the work that the team has been doing.

Speaker Change: For the past well forever actually but certainly since I've been at the helm over the last three or four years across all of our land sites.

Speaker Change: Progressing.

Speaker Change: Progressing along that path to get them to a point, where they're shovel ready because obviously every step.

Mahbod Nia: Stepping stone along that path is enhancing the value of the land and preserving or enhancing the value of that land. And so that's all that was, but I wouldn't necessarily read into it as any decision having been made with regard to the potential future development of that site or any other sites. We do that work across all of the land sites that we own. It's a balancing act in terms of the cost involved and the value created, but it's something that we do on a very much ongoing basis.

Speaker Change: Stepping stone along that path is enhancing to the value of the mine to preserving an enhancement to the body of that land and so that's what that was but I wouldnt necessarily read into it is any decision hasn't been made with regard to.

Speaker Change: You know potential future development of outside or I know, besides we do that work across all of.

Speaker Change: The land sites that that we earn them. It's a balancing act in terms of the cost involved and body created but it's a it's something that we do on a very much ongoing basis.

Speaker Change: Got it understood.

Tom Catherwood: understood. And then in July, it looks like Heinz acquired two multifamily assets in Jersey City. Do you have a sense of how those compare to your waterfront portfolio assets?

Speaker Change: And then in July it looks like Heinz acquired two multifamily assets in Jersey City do you have a sense of how those compare to your waterfront portfolio assets.

Tom Catherwood: Yeah, I mean, in what sense, in terms of...

Speaker Change: Yeah, I mean and in what sense in terms of quality or yeah.

Tom Catherwood: Yeah, in terms of quality, in terms of amenities, in terms of occupancy, any of those things as we look as a comparable to Veris' portfolio.

Speaker Change: Yeah, Yeah in terms of in terms of quality in terms of amenities in terms of occupancy any of those things as we look at the comparable to various portfolio.

Mahbod Nia: Yeah, look, I do think on the whole, you know, we do have higher quality properties in certain instances like house 25 and unrivaled. I mean, it's the offering.

Speaker Change: Yeah look I do think on the whole Oh, we do have.

Speaker Change: New.

Speaker Change: Higher quality quality properties, where.

Speaker Change: That in instances like houseware five an unrivaled.

Speaker Change:

Mahbod Nia: And so I think when you put that all together and then location wise as well, when you factor age, I mean, it's the offering, the quality of service, and management that the team tirelessly provides. I would say it's a better product across the portfolio on the whole. Those are slightly older, I understand that there is, you know, some of... The upside for Heinz isn't actually on the management side of things to extract more from those assets, but I think they're going to require a little bit more attention in terms of investment and

Speaker Change: I mean, it's the offering and so I think when you put that altogether, and then location wise as well and in fact, the age I mean, if you're offering them the quality of service management, but the team tireless he provides.

Speaker Change: I would say, it's a it's a better product.

Tom Catherwood: Got it. Got it.

Tom Catherwood: And then last one for me, Amanda, and I apologize if you mentioned this and I missed it, but how much of a drag are you expecting at Liberty Towers now that you're taking some units offline for those renovations? And was that drag in the initial 24 guidance, or was that an update with the 2Q results?

Amanda E. Lombard: Thanks, Tom. So, that was not included in our initial guidance, and we're assuming that approximately 30 units are offline. We just started doing that, so there's really no impact really in Q2, and 30 units are offline on average.

Tom Catherwood: Got it. That's it for me. Thanks, everyone.

Operator: Thank you. The next question comes from the line of David Siegel with Green Street. Please go ahead.

David Siegel: Hi, thank you. I'm curious if you can help quantify the prospective returns that you're underwriting for these new renovations of Liberty Tower.

Mahbod Nia: Morning. Yeah, absolutely. It's quite an extensive renovation involving the bathroom, the kitchen, and the flooring, and the return we're projecting on that is a high-teens return. And that's just looking at rents in the vicinity across both our properties and other properties, which are more competitive. You know, that is our oldest building that we own, and it's not necessarily racking those rents up to the same level as New York properties, such as, say, House 25, far from that, but it's just closing the gap somewhat. And that's what gets you to your high-tension.

Speaker Change: It's.

Speaker Change: Our properties and all the other properties that.

Speaker Change: A more competitive you know that is the oldest building are that we are in and it's not necessarily rocking those rents up to the same level as our New York properties, such as say House 25 fall from that but it's just closing the gap somewhat and.

Speaker Change: And that's what gets you to your high teens over time.

Speaker Change: Thank you and and similarly as you evaluate the.

Mahbod Nia: Thank you. And similarly, as you evaluate your land bank and opportunities there, what kind of hurdle rate do you think about for those opportunities? Well, I think when you're looking at capital...

Speaker Change: Your your land bank and opportunities there, what what kind of hurdle rate do you think about for those opportunities.

Speaker Change: Yeah.

Speaker Change: Well I think when you're looking at capital allocation opportunities, it's always about the relative return versus the risk that you're taking and so you know that's a thoughts on our operational and financial risks that comes with development and so when we were contemplating development as a potential <unk>.

Mahbod Nia: Well, I think when you're looking at capital allocation opportunities, it's always about the relative return versus the risk that you're taking. And so, you know, there's a certain operational financial risk that comes with development. And so when we're contemplating development as a potential Capital Allocation or Alternative, the relevant things you would look at are, first of all, just does development make sense? You've seen that development has significantly slowed down, and you know there are reasons for that, in elevated construction costs, and elevated financing costs that are making it more and more challenging to develop to a yield on cost that reflects a healthy premium over stabilized yields, particularly given that those stabilized yields have also widened with interest rates.

Speaker Change: A lot of Acacia an alternative there rather than things you would look at a festival will just cause development makes sense you've seen nationally development has significantly slowed down and you know there are reasons for that and elevated construction cost out of eight that financing costs.

Speaker Change: But that are making it a more and more challenging to develop a to a a yield on cost that reflects a healthy premium over the stabilized yields, particularly gave them better stabilized yields have also widened with route.

Mahbod Nia: And so the first thing is, you know, does it make sense to develop this? And then the second thing is, does it make sense for us as a public company? Is that a good use of capital? And, you know, the things you would think about there would be you're tying up capital for the best part of four years, even for something that's sort of shovel ready today. And so you're not going to get any credit for that.

Speaker Change: With interest rates I'm sorry, the first thing is does it make sense to Nevada, and then the second thing it does it make sense to us as a public company is that a good use of capital.

Speaker Change: And the things you would think about that would be you're tying up capital for best part of four years, even for something that was sort of a shovel ready today I'm sorry.

Mahbod Nia: It's not going to help you leverage metrics, nor is it going to help your earnings metrics. But then, ultimately, if successful, it would be accretive to earnings and NAV. And so those are the sorts of discussions that we have with the board as and when capital frees up and is available to be allocated to higher and better uses. And development, I would say, is one option, but there are many options and alternatives available to us for capital.

Speaker Change: You know, we're not getting credit for that.

Speaker Change: Leverage metrics aren't going to help your earnings metrics and so but then ultimately if successful it would be accretive to earnings on a navy and so those are the sorts of discussions that we have with.

Speaker Change: But the board either mine capital frees up and is available to be allocated to hire them back to us and development I would say is one option, but there are many options and alternatives available to us for capital so far.

Mahbod Nia: So far, the primary use of capital, as you've seen, and we've sold $2.5 billion in non-strategic assets over the last three or so years, has been de-leveraging, where we've taken leverage down from what was it, 1.18.8 times, and I was excluding rock point, which is another $500 million on top of that, and really could have been regarded as that, or should have been regarded as that. You would have been at 23, 24 times; we've taken it down to just under 12 now. And so, the primary use has so far been the repayment of that capital and the deleveraging and de-risking of the balance sheet.

Speaker Change: The primary use of capital as you've seen and we've solved.

Operator: Thank you. The next question comes from the line of Michael Lewis with Truist Securities. Please go ahead.

Speaker Change: Soon after than dollars in nonstrategic assets over the last three or so years.

Speaker Change: It's been deleveraging, where we've taken leverage down from.

Speaker Change: What was it one point 18.8 times when I was excluding rock point, which is another $500 million on top of that and really you know it could've been regarded as that should've been reported that you would've been at 'twenty three 'twenty four times, we've taken it down to just under 12 now and so the primary use has been so far the repayment of that deleveraging and derisking of the balance sheet.

Speaker Change: Great. Thank you.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: Next question comes from the line of Michael Lewis with two Securities. Please go ahead.

Michael Lewis: Yeah. Thank you. So you don't bombard you gave a you know a very balanced and fair you know response about this you know pulling the equity offering.

Michael Lewis: Thank you. So, you know, Mahbod, you gave a very balanced and fair response about this, you know, pulling this equity offering. I'm going to kind of ask it more bluntly, right? So you identified an accretive deal. It would have lowered the company's leverage. You know, the asset is extremely well. Um, you know, I would argue this is a business where scale matters, right? You look at any small-capitalized apartment REITs or GNA as a percentage of revenue.

Michael Lewis: I'm going to kind of ask it more bluntly right. So you identified an accretive deal it would have lowered the company's leverage you know the asset extremely well.

Speaker Change: You know I would argue this is a business where scale matters right you look at any small cap apartment REIT, there G&A as a percentage of revenue.

Michael Lewis: Um, you know, you're at a disadvantage from an efficiency standpoint, generating cashflow. And yet, you know, the deal got pulled. You didn't do it.

Speaker Change: You know you're at a disadvantage from an efficiency standpoint, generating cash flow and yet.

Speaker Change: You know the deal got hold you didn't do it.

Speaker Change: You talked about signaling I mean is the signal here that you know your hands are tied as far as no acquisitions no development.

Michael Lewis: You talked about signaling. I mean, is the signal here that, you know, your hands are tied as far as no acquisitions, no development? You know, do your investors, you know, do you feel that your investors don't want you to try to be a successful ongoing entity? And, you know, what does this mean? Do you start them, you know, does the board start a more formal strategic planning process?

Speaker Change: Dear investors.

Speaker Change: Do you feel that your investors don't want you to try to be a successful ongoing entity and you know what does this mean to you.

Speaker Change: You start them you know what does the board start a more formal strategic review I just I'm wondering about the path forward now.

Mahbod Nia: Well, look, Michael, our job, as a management team, is to continue focusing on the creation of value at the entity level, and that really takes us back to the three-pronged approach to value creation that we laid out at the beginning of the year: capital allocation, portfolio and platform optimization, and balance sheet optimization. We've dug into each of those, privately and publicly; there are multiple initiatives and prongs there that are real and allow us to keep enhancing the value of what we've got organically.

Speaker Change: Well the our job Michael.

Speaker Change: My team is to continue focusing on.

Speaker Change: The creation of value at the entity level I'm, not really takes us back to the three pronged approach to value creation that we laid out at the beginning yeah capped out acacia in portfolio and platform migration and a balance sheet optimization.

Speaker Change: <unk>.

Speaker Change: We've dug into each of those.

Speaker Change: Privately and publicly there are multiple initiatives and problem with that but a real to allow us to keep enhancing the body of work. We've got organically I think probably the lesson taken.

Mahbod Nia: I think probably the lesson taken away, and this is from a subset of investors, that there was an unintended signaling that perhaps the board and management team may be prioritizing external growth at the expense of, not in parallel with, evaluating a full spectrum of alternatives, both organic and strategic, for the company to continue creating and maximizing value. So I think that misunderstanding. And it was a difficult decision, probably leading to us feeling that a transaction like this, albeit, took us in the right direction on all the key metrics.

Speaker Change: Taken away and you know it's from a subset of investors.

Speaker Change: I thought that was unintended signaling that perhaps are the board and imagine team may be prioritizing our external growth at the expense of not in parallel with evaluating the full spectrum.

Speaker Change: Of of alternatives, both organic and strategic for the company to continue.

Speaker Change: Maximizing value. So I think you know that's a misunderstanding.

Speaker Change: And it was a difficult decision probably that so it's feeding that a transaction like this that would be it took us in the right direction on all the key metrics.

Mahbod Nia: It did so incrementally, and so probably wasn't worth it, the confusion that it may have caused, all of the mis-signaling that it may have resulted in. And so I think the takeaway is, and it's for the board to decide and the strategic review committee to decide what's right for the company at any point in time strategically, but I think it's more likely to be... something more transformative than an incremental transaction.

Speaker Change: It did sort of incrementally and so it probably wasn't was.

Speaker Change: The confusion that it make holes.

Speaker Change: Or the Miss signaling that it may result in them. So I think the takeaway is that it for the board to decide on the strategic review committee to decide what's right for the company at any point in time strategically, but I think it's more likely to be.

Speaker Change: Something more transformative than an incremental transaction.

Speaker Change: Okay I understand no other questions for me.

Michael Lewis: Okay, I understand. No other questions for me, thanks.

Michael Lewis: Thank you Michael.

Michael Lewis: Thank you.

Operator: Ladies and gentlemen, we have reached the end of the question and answer session. I would now like to turn the floor over to Mahbod Nia for closing comments.

Speaker Change: Ladies and gentlemen, we have reached the end of question and answer session I would now like to turn the floor over to my bad deal for closing comments.

Speaker Change: Thank you everyone for joining us today I'd like to particularly thank our team across the board our employees, who work tirelessly to develop another oh generics another quarter of incredible results for our company and we look forward to updating you again in due course.

Mahbod Nia: Thank you, everyone, for joining us today. I'd particularly like to thank our team across the board, our employees who worked tirelessly to develop another quarter of incredible results for our company.

Operator: And we look forward to updating you again in due course. Thank you. Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your...

Michael Lewis: Thank you.

Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

unknown: [inaudible]

Michael Lewis: Yeah.

Speaker Change: Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.

Michael Lewis: [noise].

Michael Lewis: Yeah.

Michael Lewis: Yeah.

Michael Lewis: [music].

Michael Lewis: Yeah.

Michael Lewis: [music].