Good morning, and welcome to Veris Residential Inc.'s First Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would like to turn the conference over to Taryn Fielder. Please go ahead.

Good morning, everyone, and welcome to the Veris Residential First 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 the 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?

Good morning, and welcome to our first quarter 2023 earnings call. I'm joined today by our CFO, Amanda Lombard. We had a positive start to 2023, underpinned by continued strength in the performance of our multifamily portfolio and momentum in our strategic transformation. We closed on the sale of Harborside 1, 2, 3 despite an extremely challenging transaction market, particularly for office. Closing the Harborside 1, 2, 3 transaction represents a significant milestone in the company's continued evolution and concludes over $2 billion of non-strategic asset sales since the beginning of 2021, which, combined with the successful development, and stabilization of four new multifamily buildings and one acquisition during this period have transformed Veris Residential from primarily an office company to a pure-play multifamily company with 99% of our NOI being derived from Class A multifamily properties. As of March 31, our 7,681-unit multifamily portfolio, which now includes Haus25 and Same Store 6,691-unit multifamily portfolio, were 95.9% and 96% occupied, respectively. Following a seasonally slower start to the year, we've seen demand accelerating ahead of what we anticipate will be another busy leasing season. The Same Store portfolio achieved a blended net rental growth rate of almost 11% during the first quarter, moderating as expected, but remaining extremely robust. In particular, our Jersey City and Port Imperial assets, which represents approximately 72% of the portfolio, continued to outperform with a 13% blended net rental growth rate achieved in the first quarter. Despite the strong rental growth, Class A rents in these submarkets remain approximately 40% below average comparable Manhattan rents. The broader North Jersey region has become one of the best performing multifamily markets in the country over the last year, driven by robust demand, combined with extremely limited new supply, which only accounted for 0.3% of total inventory at…

Thanks, Mahbod. For the first quarter of 2023, net loss available to common shareholders was $0.27 per fully diluted share versus $0.13 per fully diluted share in the first quarter of last year. Before we get into discussing additional details for the quarter, I want to call out that our income statement shows significant variances from the income statement presented in the fourth quarter. This is the result of an accounting reclassification. Harborside 1, 2 and 3, 101 Hudson, and 111 River as well as the hotels have been reclassified into discontinued operations for all periods presented. This reclassification was triggered by the sale of Harborside 1, 2 and 3 and further simplifies our financial statement. As Mahbod highlighted, with multifamily now making up 99% of NOI, the reclassification of our historical and current financial statements allows for greater ease of comparability. In particular, I'd like to call out the year-over-year growth in first quarter GAAP revenue of $19 million or nearly 50% from just a year ago. This increase has been driven primarily by organic factors such as portfolio rental growth, the stabilization of Haus25 and other newly developed assets as well as the acquisition of The James. This substantial growth is a testament to our operating platform, the quality of our assets and the strength and dedication of our team. Core FFO was $0.15 for the first quarter as compared to $0.05 in the fourth quarter. Core FFO was up quarter-over-quarter due to a variety of factors, including improved multifamily NOI, a reduction in D&A and an increase in other income. We also have benefited from a reduction in interest expense due to lower average balances on the credit facility, plus the benefit of the cap on Haus25 and 145 Front Street. In February, we announced that Haus25…

We'll now begin the question-and-answer session. [Operator Instructions] The first question comes from [Jai Bakshi] (ph) with Evercore ISI. Please go ahead.

Hey, good morning. I'm wondering if you can just talk a little bit about the conservatism you guys have baked into that 4% to 6% NOI in revenue growth per year? I know you just touched on it, but it was such a strong start in the first quarter. I'm just trying to put the pieces together on how to get to that 4% to 6% range. And just kind of what your assumptions are, especially in the back half of the year for kind of where the economy is, assuming you guys keep that 4% to 6% range? Thanks.

Good morning. Thank you for the question. Look, I think the 4% to 6% is obviously a full year figure. The fact that we've maintained guidance this quarter comes down to a couple of factors. We're only four months into the year and there are considerable potential economic headwinds and certainly uncertainty ahead. So it's really acknowledging that. And then on the expense side, there's a degree of uncertainty as well, particularly on the non-controllable expenses, where we typically see the effects of those come through in the second half of the year. It's been a very strong start to the year. We did seek to somewhat temporary expectations, and we expect rental growth to normalize to a more long-term sustainable level. We still feel that will happen, but the reality is given the strength in the New York Metro area and the very limited supply in our markets, coupled with extremely high demand for our high-quality properties, we're seeing that blended rental growth still holds up at a very robust level at this time. So, it feels a little bit early in the year. We will revisit it again next quarter. Based on first quarter, it is very conceivable that we could be on the upper end of that range, but there's a long way to go.

Great. Thanks. That's helpful. Then just one other quick one, too. I'm curious, I know you guys sold obviously Harborside 4, 5, 6 this quarter. But I'm curious as well -- just some of the interest you're getting at Harborside 5 and 6 and then 23 Main Street and as given Rockpoint exercised their right to defer for one year, does it kind of change your timeline for getting these assets sold or just any commentary on that would be great. Thank you.

Well, look, we continue to explore our options for divesting the remaining non-strategic office assets and potentially some further rationalization of the land as well. And I think that is largely independent from the Rockpoint redemption timeline. So, we'll apply the same approach that we have done historically. We'll divest those in a thoughtful manner, seeking to maximize value, but ultimately with pragmatism in order to conclude the final phase of the transformation.

Great. Thanks. That's all for me.

Thank you.

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

Thank you, and good morning, everybody. Maybe sticking with Rockpoint here in a two-part question. First is, what is their kind of total return holding on for another year? Is it just a 6% dividend or is it the full 11% with the PIK? Then are you still in discussions with them? Is there still engagement or is it the kind of thing where it's like, "Come back to us in a year, and we'll get to closing?"

Good morning, Tom. Thanks for the question, it's a very relevant one. First part of that question, the only return that is guaranteed to Rockpoint during this time period is the 6%. The balance, there will be a revaluation done and a recalculation of the redemption value accordingly as in 12 months' time. So the 6% is the only guaranteed part of that. As for the second part of your question, your assumption should be that as any prudent management team would, we will seek ways to see if there is some sort of a negotiated settlement that can happen prior to the timeline that dictated in the joint venture framework, but there are no guarantees that we'll reach agreement, in which case, we are bound by the terms of that joint venture agreement.

Got it. Appreciate that Mahbod. Then on the blended net rental growth rates, you have almost 11% for the quarter. What was the breakdown for that, sorry, if you mentioned it earlier, I just didn't hear it, between new leases that went out versus renewal leases?

It was pretty even actually, Tom. It was both right around 11%.

Got it. And then commercial assets, just some cleanup questions on those. First off, do they sit within that resi JV as well? And then, kind of what is the plan for those longer term? Do you end up holding those because they end up being complementary to the surrounding residential assets? Or could those be things that you look at as non-core longer term as well?

Yes. I assume you mean the retail and garage income, which, yes, does fit in there and is complementary to that side of the business. So there are no plans to extract that from the joint venture at this time.

Got it. And then just one last quick one for me if I can. With the kind of gains that I assume are going to be coming in on the Harborside sale and some of the other sales that you've had, are you getting close to the point in time when you're going to trigger the need to reinstitute the dividend just to meet REIT requirements?

Well, based on our projections for this year, we don't anticipate that being a mandatory dividend that would be required at this point.

Got it. That's it from me. Thanks, everyone.

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

Hey, guys. Just kind of wanted to discuss your strategy after Rockpoint. It seemed like it was a big catalyst. I know it got delayed a year, but what's the focus afterwards? Is it pay down the debt, grow the portfolio, maybe clean up some of the land that was [indiscernible] the JV encumbered by that? Just kind of curious where your head's at.

Good morning. Well, look, I think that's really ultimately a question for the Board and the Strategic Review Committee to take as and when that event occurs, taking into consideration the value of the -- the publicly traded value of the company at that point. But I would say we have a Board and a Strategic Review Committee that is highly aware of their fiduciary obligations and highly focused on maximization of value on behalf of shareholders. And what we've openly said in the past is that as we conclude the transformation, of which the repayment of Rockpoint and simplification of the capital structure is a critical part, the Board's current intention is to run a more formal strategic review process in order to better understand all of the potential opportunities to unlock the substantial value that has been created for our shareholders. That hasn't changed. We're certainly making progress nearer to that point with the sale of Harborside 1, 2, 3, but we have a little bit more work to do. Between now and repayment of Rockpoint, our focus of the management team will remain the maximization of entity value through the completion of the strategic plan.

Okay. Then just looking ahead to 2024 with your -- the Haus25 debt comes due, just curious, what your thoughts are on putting [indiscernible] debt on that asset.

Yes, the current plan is to refinance it. It's obviously an extremely high-quality property, very well leased and performing extremely well on the income side. So if there's still a good bid for refinancing that asset, your assumption should be that we would seek to refinance it.

Thank you.

Thank you.

Next question comes from Eric Wolfe with Citi. Please go ahead.

Hey, thanks for taking my questions. I guess just a follow-up on the Rockpoint redemption. I guess at this point, do you have a sense for what value Rockpoint would accept for them to like to redeem early? And I guess before they extended their option to go to May 2024, did they give you a number that would have allowed you to redeem right away?

Good morning. I'm not really in a position to be able to disclose any details of private discussions that may or may not be happening with them. As I said earlier, you should assume that we have and will seek to find some sort of a negotiated settlement that could happen sooner than the framework that is dictated in the joint venture agreement, but there are no guarantees that, that will happen in which case we are bound by the timeline that is dictated in that joint venture agreement.

Understood. And then you broke out on your NAV page, Harborside 5 and 6, $23 million. It looks like you put it at book value. I guess, is that -- should we take from that, that this is a reasonably conservative estimate of where the assets would transact, or is that just sort of a placeholder at book value for now?

I would think of it more as just a placeholder. It's not really intended to be a guide on value. We will, obviously, as we have done with the $2 billion of office that we've sold over the last two years seek to maximize proceeds from the sale of those office buildings, but that's really just intended to be a placeholder of where book value is. So it's not an indication of value.

Got it. And then I guess last question. We've heard from some of your peers, how strong the New York market has been, surprisingly so through the first quarter. Just curious what you're seeing in terms of market rents and where loss to lease in the portfolio has gone?

Yes, I think that's absolutely right. We do, as I mentioned in my scripted remarks as well, having younger, vintage, very high quality, very well [indiscernible] sized properties right across the river from Manhattan at a still 40% average discount to rent on that side of the river and very limited supply is what's really fueling the rental growth that you're seeing. And that is, at this point, still holding up and it remains pretty robust.

Got it. But I guess is there a way to quantify how much upside would be if you were just marketing rents to market today?

Yes, the loss to lease in the portfolio, we're capturing it at a pretty rapid rate, as you can see from the vendors' net rental growth. So, we're in the kind of 1% to 2% loss to lease. Market rents are still continuing to grow from there. So we remain -- at this point, we're reiterating the 4% to 6% revenue growth for the year. So take from that what you will, that translates also into 4% to 6% NOI growth. So as I said earlier, based on the first quarter, you'd certainly conclude that we should end the year to the higher end of that range, maybe even exceed that range. But there's still -- we're only four months into the year, so a long way to go.

Understood. Thanks for your time.

Thank you.

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

Hey, everybody, good morning. I guess, attacking that another way, Mahbod, would be -- so far in 2Q, has leasing demand remained resilient for the multifamily portfolio, which is the, really, only portfolio? And are you seeing any changes in demand right now, or has the strength in the first quarter continued year-to-date here in 2Q?

Good morning. That's a -- it's a good question. The strength has continued. So we are still seeing blended net rental growth rates of double digit. And so the comments I made around the demand for the assets and the extremely limited supply now and then for the foreseeable future is still allowing us to be able to push rents at pretty compelling levels.

Okay, thanks. I mean, a lot has been asked already, but just please remind me, I know it's in the [soft] (ph), but Harborside 5, 6, 23 Main Street, these are relatively unencumbered assets, correct?

That's correct. There's no leverage on those assets.

Excellent. When I look at the cash position, $393 million, I believe, net debt-to-EBITDA 10.3x, I would think the majority of that cash is going to have to be held in escrow for Rockpoint if I'm not -- if I'm correct. And then you did terminate your existing credit facilities, which would leave the coffers probably pretty bare come next year. I'm assuming that you have some pretty high degree of confidence in the disposition of 5, 6, and 23 Main, where you'd be able to perhaps increase your cash position, of course, outside of generating free cash flow. Where would you poke holes in that? Where would you agree? And what's your cash outlook? And I guess lastly, the net debt to EBITDA at 10.3x, what's the end-of-year goal on that? And then, I'm sorry for the convoluted question.

Well, I think the first point to make is that the business now having 99% of its NOI generated from multifamily and that business performing extremely well allows us to be able to actually generate a certain level of recurring cash flow from the business, which we've had a lot of volatility, understandably, given the transformation over the past couple of years, and that hasn't come to an end. But I think we are at a point where we have more visibility than we have done for some time on just the cash flow generation from the business. Beyond that, as you correctly said, we still have a substantial amount of equity that is tied in the remaining non-strategic office assets, not to mention still a substantial land bank that could potentially be rationalized to some further degree to unlock valuable equity that could be put to a higher and better use. And thirdly, we being now, say, a much more desirable, from a credit perspective, company to lend to, you should assume, I feel confident that beyond the cash flow from operations, beyond cash released from non-strategic asset sales and potentially further rationalization of the bank, we feel confident in our ability to be able to source third-party finance to the extent required as well to plug any potential holes in liquidity needs over the next year or two.

Thank you for that detailed answer. And that's it for me.

Thank you very much.

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

Thank you, everyone, for joining us today. We're pleased to report another very positive quarter of operational performance and look forward to continuing to keep you updated next quarter.

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