Good morning and welcome to the Veris Residential Inc. fourth quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Taryn Fielder, General Counsel. Please go ahead.

Good morning everyone and welcome to the Veris Residential fourth quarter 2022 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 laws. 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, 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. Mahbod?

Thank you Taryn. Good morning and welcome to our fourth quarter 2022 earnings call. I am joined today by our CFO, Amanda Lombard. Before I turn to our financial results, I would like to take a moment to acknowledge the tremendous progress our team made during 2022 on our path to becoming a pure play multi-family company. Despite the significant market volatility and resulting slowdown in transaction activity, we successfully executed on $1.4 billion of non-strategic asset sales, $925 million of which has closed since the beginning of 2022, significantly reducing our office exposure and fully exiting the hotel segment. We also completed and stabilized our newest ground-up multi-family development, Haus25, and completed the acquisition of The James, together adding almost 1,000 units to our portfolio, reflecting approximately 15% growth for the second consecutive year. As a result, we increased the share of our multi-family business from 56% of NOI at the beginning of 2022 to approximately 98% by year end pro forma for sales under binding contract and the stabilized NOI from Haus25, net of concessions that we expect to burn off during the next 12 months. This progress has also allowed us to further strengthen our balance sheet, reducing net indebtedness by nearly $570 million. Amanda will discuss this further. Our 6,931 operating multi-family portfolio and our 5,825 unit same store operating portfolio were 95.3% and 95.5% occupied respectively as of December 31. This is consistent with our strategy of optimizing rents and growing NOI during the year. We continue to capture upside in our portfolio and have seen sustained growth of headline rents [indiscernible] reducing to below 2% at the end of the quarter. The same store portfolio achieved a blended net rental growth rate of 17% for the year and 11.7% for the fourth quarter. Our…

Thank Mahbod. For the full year 2022, net loss available to common shareholders was $0.63 per fully diluted share versus $1.39 per fully diluted share in the prior year. Net income available to common shareholder was higher in 2022 as a result of the ongoing transition to a pure play multi-family REIT and higher gains recorded in 2022 on sales of non-strategic assets. Core FFO was $0.05 and $0.44 for the fourth quarter and full year of 2022 respectively. As communicated previously, the transition to a pure play multi-family company continues to drive near term variability in our earnings. As we are focused on driving long term value and earnings growth rather than short term profit, the sale of highly levered assets with high capital requirements results in depressed earnings in the short term, despite these assets generating little cash flow for distribution to shareholders. The good news is that as we conclude the transformation and reallocate the significant equity released from non-strategic sales, there is room for significant earnings growth over the next 24 months. Given this backdrop, we have added a reconciliation in our earnings release of the variances from the third quarter to the fourth quarter. Ignoring all the noise, fourth quarter core FFO would have been $0.07 excluding $0.02 of one-time items related to catch-ups and property-level expenses and Jersey City real estate taxes. We believe that earnings will grow in the space due to the Haus25 lease-up, continued improvements in our overhead cost structure, and further strengthening of the balance sheet. As Mahbod mentioned, Haus25 achieved stabilized lease occupancy in February; however, the GAAP NOI in Haus25 doesn’t reflect the fully stabilized NOI as there are concessions that will burn off over the next year. In addition, the fully stabilized NOI of $30 million presented…

We will now begin the question and answer session. [Operator instructions] The first question comes from Steve Sakwa with Evercore ISI. Please go ahead.

Yes, thanks. Good morning Mahbod. A couple questions here. Look, I understand you’ve greatly simplified the company, there’s not much left on the non-core side but you’ve still got a couple of lowly leased office buildings, and there is some land, I guess both inside the Rockpoint JV and outside, so can you maybe just talk about the timing and maybe the appetite from investors today for both the office buildings and maybe the land, assuming that you’re not planning to put that land into development service anytime soon?

Good morning Steve, and thank you for the question. It’s a very relevant one. I would start by saying development at this time is not a priority for the company, given what that entails in the near term in terms of capital requirements, leverage implications, etc., and the fact that development would take a minimum of three to four years to begin yielding income, which is a focus for the company, so that is not a priority at this time. As for the remaining non-strategic assets, and as you correctly point out, that is the two remaining office buildings once Harborside 1, 2 and 3 close, Harborside 5 and 6, and potentially some further rationalization of the land. We are seeing continued interest from buyers in both. We’re evaluating our options, both on the office side and the residential side. We may seek to further rationalize the land to some extent and the office assets have been designated as non-strategic. It doesn’t mean we’ll fire sell them at any price tomorrow, but it does mean that as we have done with the balance of the non-strategic assets to date, we will on a thoughtful and balanced, measured way exit those in due course.

Okay, and maybe a second question, I realize you haven’t officially designated what you’ll do with the proceeds, but I think the market expectation is that you would look to try and simplify the company and pay down or pay off the Rockpoint joint venture. I guess my question is, to the extent that you do close the Harborside sales and bring in the cash that you’ve talked about, along with the suburban asset, are there any restrictions that you have, either via the line of credit or other debt, that would sort of preclude that or would hamstring you in paying off the Rockpoint venture whenever you cross that mark?

Well, as I’m sure you know, there are certain parameters or framework within which a repayment would occur under the Rockpoint joint venture, so there’s a buy-sell agreement that can be triggered by the party, could be deferred by up to 12 months, so within that framework, to the extent the board determines that to be the highest and best use for the equity that’s released, we will look to obviously do what we can to efficiently reallocate the capital if it is determined that that is the path we should go down in a manner that is consistent with the framework, or otherwise negotiate it. I’m sorry, what was the other part of your question?

I was just trying to understand, are there any limitations on the use of capital?

Yes, the only limitation is obviously--yes, the only other limitation is the credit line, you should assume given the proceeds for a potential repayment of Rockpoint, would have to come from the sale of Harborside, and Harborside really represents the collateral, or part of the collateral for the current revolving credit facility. You should assume that there would be some sort of amendment or replacement of that revolving credit facility, but nothing that would hamper us there or restrict our ability to be able to move forward in that direction under the framework with Rockpoint.

Okay, great. Just last question from me, as you look at out to, I guess kind of March-April and potentially even May, how are you thinking about the renewal increases that you’re sending out to existing residents on the multi-family side? Where are those notices going out, and how might that have compared to the renewals that you got in maybe December, January and February?

Well, it’s still looking quite strong. We have tried to temper expectations. We do think that ultimately they will normalize at a lower level, and we provided some guidance around that which I hope that you and others will find helpful at this stage. But what I can tell you is for the next couple of months going forward, we’re still looking at double-digit renewal notices across the portfolio.

Great, thanks. That’s it for me.

Thank you Steve.

The next question comes from Tom Catherwood with BTIG. Please go ahead.

Thank you and good morning everyone. Following up on Steve’s question on the sales, Mahbod, where are we sitting with Harborside 1, 2 and 3? I know the expectation was for that to close, I think in the first quarter of this year. How are we kind of looking in the process?

Good morning Tom. Sitting here today, our expectation is still very much that that transaction closes within that time frame. Nothing is done until it’s done. It is a tricky transaction market. Could timing slip? Possibly, but actually we’re in regular dialog with that buyer and, based on everything we know, we feel confident today that that will still close within the time frame that we had originally indicated.

Got it. Back on the January 18 press release you put out, talking about the negotiations and the offer that had come in from Kushner, the comment was obviously that the board had planned to launch a strategic review process in due course. Where are you in that early stages of the process, and what are the triggers that can commence that strategic review?

Look, this is--what you’ve seen is we have a recently reconstituted, independent, transparent board that is highly focused on their fiduciary obligations and on the maximization for value for all shareholders, and in the spirit of that transparency, the board was just making it be known to shareholders that we’ve had a number of inbounds from credible institutions who have expressed an interest in the multi-family side of the portfolio, given that now we are beginning to hopefully reach the conclusion of the transformation with the sale of the non-strategic assets, which are less interesting to those parties, and that also consistent with best corporate and governance practices, the board as it currently stands would contemplate running some sort of a process in due course at the appropriate time, taking into consideration where we are in the strategic transformation, market conditions, and any other relevant factors to evaluate that interest and ultimately determine whether it would be in the best interests of shareholders to move forward on any path there. No specific definitive time frame given, but I think those are the sorts of factors that the board would consider.

Got it. Appreciate that color, Mahbod. Then last one from me, this is kind of a couple quarters in a row where the net asset value that you’re carrying for the Rockpoint interest has declined. I assume that that’s with changes in the underwriting as you’re looking at the ultimate IRR of that investment. What has been that underwriting change or hurdle change as you’re looking to value that investment?

Yes, look, we obviously reassess the value, and that’s based on an entity value of the multi-family side of the business in which we have a joint venture with Rockpoint, and on a quarterly basis we go through asset by asset and take into consideration cap rates and other relevant factors to determine where value sits and ultimately what that would imply in terms of the value of that stake. That’s all you’re seeing. If you’re seeing some variability there, it’s obviously primarily driven by the movement in rates and the implications for the value of assets.

As far as that cap rate move, how material has that been as part of that underwriting?

Look, it’s asset by asset, so I would say overall as far as the markets are concerned, it’s too early to draw any conclusions in terms of where cap rates have moved to or values have moved to. We’re still in the period of price discovery. Transaction volumes are extremely muted, especially here in Jersey City where we have a concentration of assets, so it is a little bit of an art as opposed to a science. There aren’t too many comps but we tried to triangulate to a value that ultimately we think would reflect the quality of these assets, the scarcity of these assets, and really the wall of capital that’s still seeking to acquire high quality multi-family assets.

Got it, appreciate the answers. Thanks everyone.

Thank you Tom.

The next question comes from Joshua Dennerlein with Bank of America. Please go ahead.

Yes, hey guys. Thanks for the time. I just wanted to dig into your guidance assumptions a little bit more. Maybe just a first one, what are you guys assuming as far as market rent growth or new lease rate growth?

Sorry, what are we assuming in terms of overall rental growth?

Market rent growth for multi-family portfolio. I know you talked earlier to the renewal rates, so.

For this coming year, we’re assuming in the region of 3% rental growth.

Three percent - okay. How does that compare to what you saw just last year across the portfolio, market rent growth?

Well, it’s obviously tempered down somewhat given the pace of growth that we saw last year and potential economic headwinds ahead, so last year, to put it into context, Jersey City, where we’ve got the highest concentration of assets as a market for Class A, saw around 8% rental growth. We achieved around 15% rental growth in the last 12 months.

Okay, awesome. Then maybe on the non-controllable expense side, what are you seeing as far as real estate taxes, or what’s baked into your expense growth guidance?

Well, on the controllable side--sorry, did you say on the non-controllable or controllable?

The non-controllable. I guess I’m just [indiscernible].

Non-controllable, we saw a pretty significant increase, one of the highest in the country, really, a 32% increase in Jersey City taxes, and so the assumption would be that that’s not sustainable in perpetuity, and so hopefully that magnitude of that would suggest that any future tax increases, to the extent they come, won’t be quite as high as we’ve seen. What we really sought to do is on the controllable side, where we do have by definition more control to really mitigate the impact of inflation, where you saw us actually slightly reduce costs year-over-year and that’s where we’re focusing our efforts going forward to continue to further optimize the cost structure there.

Great, thanks guys.

Thank you for the questions.

The next question comes from Nicholas Joseph with Citi. Please go ahead.

Hey, good morning. A bit of a follow-up here, but how specifically is the team and the board planning on creating shareholder value beyond the current public offer out there right now?

Sorry, beyond the--?

The current public offer from Kushner.

Oh, I see. Well, so I wouldn’t say that there’s on path, Nick. I think you have, as I said, a recently reconstituted board that is independent, that has been very transparent, highly focused on their fiduciary obligations and on the maximization of value for all shareholders, and they have and will continue to evaluate any credible inbound offers in parallel with the strategic transformation and the work that we’re doing as a management team. But any such offers obviously must be fully funded and must reflect the intrinsic value of Veris Residential. With regard to the offer that you’re referring to, the board has made it clear that $18.50 does fall short of our adjusted new world view of where value sits, and there does remain a significant question mark of whether that is either a financed offer, but nonetheless the board has constructively engaged with Kushner Companies with the aim of signing an NDA, which is quite normal and a logical first step in situations like this, particularly when you’re dealing with a competitor, so that we can share non-public information and see if we can bridge the gap in value to where we think value sits. But as it stands, having spent time and made concessions to get to agreement on that NDA, we have not received a signed NDA. The board remains very much willing and open to engaging with Kushner Companies or anyone else who has the ability to be able to move forward on a qualified basis, so the two are not mutually exclusive. The path that we’re focused on as a management team is continuing to simplify the business, complete the transformation. Ultimately we believe that creates entity value and to the extent the board decides to crystallize that value mid process, at the end of that process, really at any time, that’s a decision for the board and the SRC.

Great, thanks for that color. Then just a quick follow-up, are you having any other conversations with anyone beyond Kushner?

Well, it’d be inappropriate for me to comment on any specifics, but as we did mention in the January 18 press release, we’ve had a number of credible inbound expressions of strategic interest for the multi-family portfolio, given the progress that we’re making on the strategic transformation.

Got it. Thank you very much.

Thanks Nick.

The next question comes from John Pawlowski with Green Street Advisers. Please go ahead.

Hey, good morning. Should we expect any multi-family acquisitions this year?

Good morning. Ultimately between the--if you think about the amount of equity that would be released from the remaining non-strategic asset sales, it’s significant, and as I mentioned earlier, it would be a decision for the board to make at the appropriate time what’s the highest and best uses for that capital. Are acquisitions a priority? I don’t think so, but ultimately should they be one of the uses that’s considered, I imagine it will be, but no decision has been made on the use of capital at this point.

Okay, and just maybe a follow-up to Steve’s question at the beginning, it sounds like we should not expect any development starts this year? Is that a fair interpretation?

Yes. Again, look - I don’t want to rule that out. That would be something that we’d discuss with the board, but it is not something that I would imagine being a priority given our focus on other metrics, namely cash flow generation to be able to replenish lost cash flow from the sale of highly levered office assets and ultimately get to a position of turning the dividend back on, and given leverage considerations, I don’t believe development will be a priority. But ultimately, as I say, use of proceeds will be a decision made in conjunction with the board.

Okay. Last question from me, just curious how far along in the marketing process are you on Harborside 5 and 6, and realistically, when is the soonest you could sell these properties?

We’re not really looking to provide any guidance, but I think what I would say is despite challenging transactional markets that we’re clearly in, and I would say we have been in for the last two, two and a half years with COVID and it hasn’t stopped us from making progress and making progress in a thoughtful, balanced, measured way, we are considering our options with regards to those two assets and ultimately we’ll update you in due course, but not looking to put any kind of time frame on when those get sold.

Okay, thanks for the time.

Thank you.

The next question comes from Derek Johnston with Deutsche Bank. Please go ahead.

Hi everybody, good morning. Mahbod, as you field incoming interest that you mentioned for the multi-family portfolio, aren’t potential buyers keenly interested in the land bank as part of any transaction, which kind of limits your ability there? If you can discuss that as land acquisition remains costly and development yield is under pressure, just thinking that’s probably part of the puzzle or the pie, so to speak, so if you could expand.

Yes, thank you Derek. That’s a great observation because the inbound expressions of interest, as expected, are largely in the platform, and there is huge value in controlling developable multi-family land, and so for some of those prospective buyers, yes, it is absolutely interesting to continue to have some land in the business. The question is, is all of it of interest, and should we rationalize it to some further extent prior to--you know, as part of the transformation? That’s a balancing act and something that we’re working closely with our advisors and the board to determine.

Okay, thanks. Just a quick follow-up, can you remind us of what the land bank entails, the entitlements in it and the parcels?

Value-wise, just over $300 million, and around 5,000 units is what we believe can be developed on it.

Thanks for the time.

Thank you for the questions.

We have a follow-up from Steve Sakwa with Evercore ISI. Please go ahead.

Great, thanks. Mahbod, just one follow-up. On Page 7, where you break out some of these non-strategic assets, you do put this estimated land value inside Rockpoint JV that’s roughly $240 million for roughly 5,000 units. I just wanted to be clear, is that 100% owned by Veris, or if you were to, say, sell that either as the entity or individually, do some of those proceeds get shared with Rockpoint?

No, that’s our share of value, Steve.

Okay.

What we’re just trying to show there is what’s inside the joint venture, what was [indiscernible] versus what was on the corporate side, but that’s our share.

Okay, great. I guess just going back to John’s question on Harborside 5 and 6, and I know leasing was virtually non-existent at 1,500 square feet, I guess I’m just trying to understand a little bit better, the assets don’t have assumable debt, which if it did might make them more sellable for a buyer if they were at low rates. I guess what I’m trying to figure out is with the lack of leasing, how problematic is that to sell 40% and 20% office buildings today with no debt assumable in today’s environment?

I think it’s a great question, actually. You’re absolutely right - leasing was muted, but not across our portfolio. It was actually muted in the fourth quarter across Jersey City and across Manhattan, we had a significant decline in leasing. What leasing did occur was really driven by lease expirations, not by growth or strategic initiatives. It was really renewals. There are some early signs in 2023 that seem positive, that potentially leasing could see some sort of an uptick and increased number of inquiries, but actually with regard to Harborside 5 and 6, beyond that office use, buyers that we’re speaking to are looking at an alternative use, is what I would tell you.

Okay, and one last from me. I guess on Page 13, where you kind of reconcile from FFO to core FFO, there’s a couple of add-backs. I just wanted to understand a little bit more. There’s a dead deal in transaction costs of $2.1 million and then there were severance/re-branding, I don’t know how much was severance, how much was re-branding, but are those severance/re-branding costs kind of over with at this point or do you expect any of that to be carried forward into ’23?

Hi Steve, this is Amanda. In the severance and re-branding costs for the fourth quarter, that’s all severance related cost. It’s as far as what we’d expect in the future - we’re not giving guidance on that, but the re-branding costs are done and we don’t expect any more of that, and they’ve been done for some time now. To your question on dead deal and transaction-related costs, that’s just some various professional fees from a transaction that didn’t go through, and I don’t know what will happen and if we would have more or not in the future.

Great, thanks. That’s it for me.

Thank you Steve.

This concludes our question and answer session. I would like to turn the conference back over to Mahbod Nia for any closing remarks.

Thank you for joining us today. We’re pleased to report another quarter of progress in our strategic transformation and a fifth consecutive quarter of stellar operational performance. I’d like to thank the team for their tireless efforts that have allowed us to achieve these results, and we look forward to updating you again in due course. Thank you.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.