Good morning and welcome to Residential Veris Inc's Third Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. Please note that this event is being recorded. I would now like to turn the conference over to the General Counsel, Taryn Fielder. Please go-ahead ma'am.

Good morning, everyone and welcome to Veris Residential's third quarter 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. Mahbod?

Thank you, Taryn, and good morning, everyone. We're pleased to report another quarter of strong NOI and core FFO growth driven by the better than anticipated resolution of our non-controllable expenses and continued market rent growth; resulting in a 17% increase in core FFO during the first nine months of the year. We continue to build upon the strong results delivered in the first half of the year, making steady progress across a number of strategic initiatives aligned with our three-pronged value creation plan. We refinanced an additional $308 million of mortgages during the quarter utilizing the corporate facilities secured earlier this year, further reducing our property level debt and now have no remaining consolidated debt maturities until 2026. We continue to achieve strong operational results despite a wider market slowdown, realizing NOI growth of 6.7% and blended net rental growth of 4.8% for the first nine months of 2024. This resulted in core FFO per share of $0.17 for the third quarter as compared to $0.12 in the third quarter of 2023, an uplift of 42%. As we look toward the last few months of 2024, we remain confident in the performance of our highly amenitized newer vintage average age eight years, well located class A portfolio. This is reflected in our raised guidance which Amanda will discuss in further detail. Looking more closely at our operational performance, our portfolio maintained 95.1% occupancy with retention increasing to 55% as we realized 4.6% blended net rental growth for the quarter or 4.8% for the first nine months of 2024.Portfolio wide renewal growth remained stable at 6.5% and new leases grew by 1.3% above the national average of 0.9%. New York City recorded September's highest national year-over-year growth in asking rents at 5.4%, which has continued to drive demand for our…

Thank you, Mahbod. For the third quarter of 2024, net loss available to common shareholders was $0.10 per fully diluted share versus a net loss of $0.60 for the same period in the prior year. Core FFO per share was $0.17 for the third quarter compared to $0.18 last quarter and $0.12 for the third quarter of 2023. For the nine months ended September 30, we reported core FFO growth of 17%, driven by strong rental revenue growth, lower property expenses and lower interest expense. Same-store NOI growth was 8.4% for the quarter and 6.7% year-to-date For the quarter, same-store revenues were up 4% as compared to last year, primarily driven by market rent growth. Year-to-date, revenues were up 5.9%, driven by market rent growth and approximately $1.6 million of other revenue in the first half of the year and outsized year-over-year growth from House 25 as the assets stabilized in the first quarter of 2023. On the expense side, total expenses declined 4.4% for the quarter and were up 4.2% for the year. This quarter is driving significant variability as we renewed property insurance and finalized Jersey City real estate taxes, both of which came in favorably relative to our expectations. Insurance expense is down approximately $1 million in the third quarter as compared to last quarter. However, of that amount, approximately $700,000 reflects adjustments to the first half of the year, leaving only around $300,000 related to the third quarter and bridging to the new insurance run rate. In addition, this quarter, we received the final tax bills for Jersey City, which resulted in a 1% reduction on a run rate basis from 2023. Similarly, we saw a sequential reduction in taxes of approximately $800,000, $600,000 of which relates to prior periods. Turning to overhead. After adjustments for…

[Operator Instructions] Our first question comes from Steve Sakwa of Evercore.

Mahbod, I guess I just wanted to start off with kind of your thoughts. You sort of touched on it in your prepared remarks, kind of the playing off of New York and maybe just some of the softness that we're seeing really across some of the multifamily operators with city exposure. And I'm just curious what maybe evidence you're seeing kind of either rent fatigue or just inability to push rents in certain parts of the Jersey portfolio.

Steve, thank you for the question. As I mentioned in my prepared remarks, we're still benefiting from an extremely strong -- actually the strongest growth was exhibited in the New York area during the quarter and being across the river with new, highly amenitized, generally larger product at a 30-plus percent discount to properties in Manhattan. And then also, benefiting from very limited, if any, new near-term supply in our markets really is providing very strong tailwinds to our portfolio. So, I would say we're very pleased with the performance in Q3. We're very optimistic and confident about the performance going into Q4. Obviously, we're entering a seasonally slower leasing season, and so, you'll expect some seasonal slowdown. We're not immune from that. But on the whole, very positive.

Secondly, you mentioned Liberty Towers. Maybe I missed it or don't have it recollected, but did you ever provide kind of like an overall, I guess, targeted dollar spend on that project? I mean I know you talked about mid- to high teens return, but what is the overall total capital budget for that project?

It's around $30 million on these renovation programs, maybe a touch above that, but around $30 million is what we're looking to spend over the 3, 4-year period, Steve.

Great. And then just lastly, you sort of talked about trying to look for investment opportunities maybe outside of the renovations. Just curious, as you try and clean up maybe some of the JV structures and get more assets more consolidated, just sort of how is that process going? What are your expectations to maybe streamline the portfolio from an ownership perspective? And I don't know if that creates any more savings or synergies by having fewer JVs.

Yes. Look, at any moment in time and really that's been consistent with our approach over the last three and a half, four years, we're looking at a wide range of opportunities within the portfolio and externally. And so, Liberty Towers is a product of that, and we treat it like any other investment to the extent that there are other opportunities. And you've got to bear in mind, we've got a very young, relatively new portfolio. And so, there aren't too many opportunities. That's our oldest asset. But there may be some other opportunities for investment within the portfolio. And to the extent that we identify those, we evaluate them like any other capital allocation decision, what's the return profile, what's the risk? And then is it ultimately a good investment for our shareholders. With regards to the joint ventures, absolutely, it's possible that we've said in the past, some further simplification there would certainly benefit us in many ways. It's not always straightforward to effect or to execute on that simplification plan, but it's something that we're working on. Nothing to update today.

Our next question comes from Eric Wolfe of Citi.

In your supp, you give your multifamily NOI for NAV purposes. It saw a large sequential jump, which I guess is due to the lower expenses. So, I was just curious whether anything in that is more onetime in nature like tax refunds or true-ups from accrued expenses. I'm effectively just trying to understand whether that is a true recurring run rate? Or would it kind of go down next quarter?

Eric, so, a part of that is due to onetime in nature. So, as you correctly identified, that is due to the impact of the resolution of our non-controllables on insurance and taxes. And as we have -- as I have said a little bit earlier in my prepared remarks, about $1.3 million of the $2 million change in NOI on the office and insurance is related to the prior periods. So, really on a run rate basis, about $500,000 reduction.

So, we could just take that number that's in there and then just take a $500,000 reduction to get to kind of like a recurring type number. Is that accurate?

I think you'd want to add $1.3 million to it on a quarterly number and then annualize that $1.3 million if you're looking at an annualized figure.

All right. And then as far as the insurance renewal, I guess, did you change anything in terms of coverage or increased self-insurance or anything like that? Or was it just really just lower pricing.

Yes, it's really driven by just improved pricing overall. That's it.

But look, I think we've had a couple of years of very significant increases. I'd also, point out that -- and this is relevant when you're looking at our margin, which now is very much, I'd say, a respectable margin. We've taken it from 57% now to 68% this quarter, 67% year-to-date. So, it's really right up there with the pack. But we still have -- we get penalized to some extent on the insurance side, given our concentration in Jersey City, and that's worth 150, 160 basis points of margin alone just on the insurance side. So, we're happy to see it come down slightly and not see the scale of increases that we've seen over the last couple of years. But you're also, really seeing that across not all regions, but you are seeing that across the industry this year.

The next question comes from Tom Catherwood of BTIG.

Maybe Mahbod or Amanda, now that you've executed on the strategy you laid out earlier this year for your balance sheet, what is the plan for kind of the next phase of that overhaul? Kind of what other tools and options do you have on the table?

Well, we -- in adopting this new approach to financing our debt, we're really leaving a lot of optionality on the table and flexibility for the company to be able to manage its balance sheet over time as and when we have the capital available. And so, we're in a position now having come out the other side of the transformation where you saw earnings obviously erode, which you'd expect as we were selling a lot of high-yielding office and highly levered high-yielding office and transitioning into multifamily. We've come out the other end of that now we're cash flow positive in a meaningful way. The portfolio is growing. And so, there's cash flow. And so, with this construct that we've now got, we have the ability to be able to use that cash as and when it's sitting idle to pay down the revolver and save interest expense that way. We still have a not insignificant amount of equity tied up in an idle equity tied up in land. To the extent that, that's freed up over time, that gives us -- it will be a capital allocation discussion to have with the Board. But if the decision is made to pay down debt, then that gives us the flexibility to be able to continue along that path by recycling that equity. And then as Steve mentioned earlier, we still have joint ventures and some of those may be cleaned up over time, no guarantees, but there's another pocket where there's several hundred million dollars of equity but to the extent that that can be released, we'll have a similar discussion about use of proceeds and identifying the highest and best use of that capital. But if it's determined to be repayment of debt, we've set ourselves up with the flexibility to be able to continue strengthening our balance sheet without significant costs associated with that.

Maybe following up on your comment on the idle equity in land. The impairment that you took this quarter, is that a change in hold period for an asset that you're looking to sell near term? Or was it a JV asset where the impairment rules are more stringent and don't necessarily tie to a change in hold period?

Tom, this is Amanda. So, that impairment that we took this quarter is related to a land asset. And I would say it's due to actually clarification on the market value and information we have from negotiations on that asset. And it's not a joint venture.

I'm sorry, what was the last one?

It's not in a joint venture.

Got it. Appreciate it, Amanda. And then last one for me. The sale of the shops at 40 Park that happened in October, was that -- did you lead that push? Was that -- I know you only had 25% of that asset. So, was that led by your partner? Or was that a reverse inquiry? Can you provide us a little bit more color on how that sale came to be?

As you correctly say, Tom, we're a minority partner in that joint venture. So, I wouldn't say we led the charge, but we were supportive of that transaction.

Our next question comes from Michael Lewis, Truist Securities.

My first question goes back to the bridge of core FFO from 3Q to 4Q. Just kind of doing the math here, it looks like your guidance implies about $0.10 or $0.11 in 4Q. So, I understand -- down from $0.17 in 3Q. I understand the favorable prior period tax adjustments, $0.01 or $0.02. You mentioned overhead. The interest expense isn't clear to me, right? I would think that would benefit 4Q as much, if not more. Could you just kind of give us the pieces to get from the 3Q to 4Q again?

Michael, sure. I can take you through that. So, Q3 was $0.17 of core FFO. It's about $0.02 from the non-controllables resolution. That's a onetime item. From there, interest expense. So, Q3 interest expense is low because we're benefiting from having repaid our debt in -- at the end of June and in May. And we also, have the Old-World mortgage rates on Liberty Towers outstanding at a 3.4% coupon versus where the new term loan and revolver sits at. And so, that adds about $1.6 million of interest expense, that was around $0.02. So, there, you're down to $0.13. And then from there, to get to where our guidance is, it really comes down to the seasonality in both our operating level expenses, but also, our corporate overhead and not something that's typical. We see where those costs go up slightly in the fourth quarter.

Okay. I got it. That makes sense. And then my second question, I don't know if you've seen this, but I saw anybody who lives in New York and has rented apartment knows that the renter will pay broker fees. I saw that the city council may be close to reversing that. Now if that happens, my first guess would be that rents kind of just go up in New York and eat that up. I don't know if you've seen this or have any thoughts around it, whether that change in who pays the broker fee could have any positive or negative impact in New York relative to, again, the value proposition of your portfolio?

Yes. Look, I think we -- that would be one factor, but there are several other factors driving rents in New York, which, as we said, is still performing extremely well. And so, there is some correlation and spillover into what that means for our markets. But as a single isolated factor, I wouldn't say that's one that we believe has the potential to meaningfully move rents over and above the trends that are already causing rents in New York to rise in the way that they are.

Ladies and gentlemen, that concludes our question-and-answer session. I will now hand over to the CEO, Mahbod Nia, for closing remarks.

Thank you, everyone, for joining us. We're pleased to report another very strong quarter. I'd like to thank our teams for all the hard work and commitment that allow us to be able to post results like this, and we look forward to updating you again next quarter. And Happy Halloween.

Thank you, sir. Ladies and gentlemen, that concludes today's event. Thank you for attending, and you may now disconnect your lines.