Good morning, and welcome to the Veris Residential Third Quarter 2022 Earnings Conference Call [Operator Instructions. Please note, this event is being recorded. I would now like to turn the conference over to Taryn Fielder, the General Counsel of Veris Residential. Please go ahead.

Good morning, everyone, and welcome to Veris Residential's third 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 and annual and quarterly reports filed with the SEC for risk factors that impact the company. With that, I would like to hand you over to Mahbod Nia, Veris Residential's Chief Executive Officer. Mahbod?

Good morning, and welcome to our third quarter 2022 earnings call. I'm joined by our CFO, Amanda Lombard. During the quarter, we continued to make meaningful progress on our strategic transformation despite the significant market volatility, while delivering a fourth consecutive quarter of strong rental and NOI growth across our multifamily portfolio. As evidenced by our binding agreement to sell Harborside 1, 2 and 3 and the completion of the sale of 101 Hudson Street, we're now in the final phase of our transformation. Inclusive of these transactions and pro forma for the stabilization of Haus25, multifamily will represent approximately 98% of NOI, up from 39% around 18 months ago. Looking ahead, the sizable proceeds anticipated from Harborside 1, 2 and 3, in addition to potential further nonstrategic asset sales, will provide the company with substantial liquidity as we seek to conclude our transformation. Our 6,931-unit multifamily portfolio had occupancy of 95.8% and achieved a blended net rental growth rate of 20% during the quarter. Headline rents continue to grow and the loss to lease in the portfolio reduced from 5% to approximately 2% during the quarter as we continue to capture upside in our portfolio, notwithstanding the challenging macroeconomic backdrop. From a leasing perspective, we are seeing some signs of mounting pressure on consumers and businesses due to rising inflation and interest rates. While we're not immune from these forces, we believe that our class A multifamily properties possess unique characteristics. They are well located, modern and well amenitized, and as such, should prove somewhat resilient due to their compelling relative value proposition, especially relative to New York City. A particular note, while New York City rents are cooling on the whole, the luxury segment has held up comparatively well given the limited supply. This is evident in our…

Thanks, Mahbod. For the third quarter of 2022, net mark available the common shareholders was a $1.10 per fully diluted share, versus $0.25 for fully diluted share in the prior quarter. Net income available to common share holder was down quarter-over-quarter due to a onetime noncash impairment of approximately $85 million on the Harborside office assets recognized in the third quarter as well as the benefit of a $55 million gain on the sale of land parcels completed in the second quarter. Core FFO for the quarter was $0.15 per fully diluted share, in line with last quarter. We began to benefit from NOI contributions from Haus25 and The James equating to $0.04 per share. This was offset by interest expense of $0.03 per share due to rising interest rates and another $0.01 per share related to lower capitalized interest on Haus25. Note that the NOI contribution from Haus25 includes almost a full quarter of real estate taxes and expenses for the period while revenue ramped up from a nominal amount over the quarter. As such, the FFO contribution this quarter does not yet reflect a stabilized run rate. Year-over-year, same-store NOI was up 21%. However, despite strong rental growth, same-store NOI sequentially was down by 2% as we had anticipated due to the catch-up in higher real estate taxes, primarily in Jersey City. We expect that real estate taxes on a run rate basis will be roughly 3% lower than the total real estate taxes recorded this quarter due to further increases expected in the fourth quarter. Excluding this adjustment for real estate taxes, the sequential same-store NOI was up 2%. Diving deeper into expenses, the increase in marketing payroll and R&M is largely due to seasonality. As lease expirations peaked over the summer and were approximately 50% higher…

Thank you, Amanda. Before turning to Q&A, I would like to take a moment to address the unsolicited proposal of Kushner Companies has made to Veris Residential. This morning, we responded to Kushner Companies via press release, which can be viewed on the Veris Residential website. As such, we will not be answering any questions related to the situation or be able to provide any further detail beyond what was disclosed earlier today. Operator, please open the line for Q&A.

[Operator Instructions] The first question comes from Stephen Sakwa from Evercore ISI.

Obviously, you guys have made a lot of progress simplifying the company and streamlining to becoming almost a pure multifamily company. There's still, I guess, a few remaining assets that are not multifamily to sell. And I'm just wondering if you could sort of give us an update on Harborside 5 and 6, the marketing process and the demand that maybe you saw for Harborside 1, 2 and 3? And I guess, where do the hotels fit into the disposition plan?

Thanks, Steve. I think it's a relevant question given the amount of equity that's still tied up actually in those assets and the impact that will have on the tail end of the transformation. With regard to the hotels, as you know, one of them, the Hyatt, is under contract and scheduled to close towards the end of this year. As for the other assets, I would really make the comment across all of our remaining nonstrategic asset, which is that we haven't really got any guidance and it would be imprudent to do that given, particularly market conditions on timing of any further realization of sales. But we watched pretty, I think, tenaciously and be pretty pragmatic through also challenging conditions over the past 18, 24 months to move the transformation forward, and we'll continue to exercise the same level of pragmatism in a balanced, measured way as we have done historically to sale the remainder of non-strategic assets.

I guess, can you just provide any color on sort of the depth of the buyer pool for the Harborside 1, 2 and 3. And I guess if there were folks that were in that process and didn't win that bid, might they come back 5 and 6? Or is the bidder pool fairly shallow? I'm just trying to get a sense for who's out looking for opportunistic office with a difficult capital market environment today.

Well, we started to process for Harborside earlier this year, and we had decent interest around the whole portfolio, and then we also had interest around subcomponents of the portfolio. So the buyers are fairly varied, but I'd classify them as generally the value adds they are looking to sort of repositioning opportunities in the office space. And so it is conceivable that potentially one or more of the buyers that we spoke to during our process could be a buyer for 5 and 6. But no determination on the Friday announcement around that at this time.

And then just another question for me. Just on the multifamily, can you give us a sense for where you're sending out renewal notices today for, say, the December, January, February time frame? I realize you've had some pretty big growth, but I'm just trying to get a sense for what kind of renewal increases and maybe to the extent you've got spreads on new leasing, where are those shaking out for November, December?

As we mentioned, look, it's 20% blended net rental growth is not sustainable really anywhere. And we -- as with other peers, we do expect to see that normalize somewhere lower. In October, we see it come down to -- sort of come down to the mid-teens. And I think going forward, you should expect this could be in the -- for the period that you referenced in the low double-digit range.

[Operator Instructions] The next question comes from Nick Joseph from Citi.

How have cap rates moved in the New Jersey multifamily market today? And if you provide these components to the NAV in the supplemental, when you apply the updated cap rates, how are you thinking about value in terms of NAV for the company?

Well, I think I would say it's too early to really make any definitive statements about where cap rates have landed. The markets are very much still in the period of price discovery, and we're not seeing a huge amount of transaction volume out there. So I don't think that no question cap rates are wider than they were, but I think it's too early to say where cap rate stabilize. What I would say is the assets that we own really are prime, the highest quality assets in the market, the youngest with the best community offering and such scarce in nature and still seeing very strong NOI growth. And so I would expect these assets to be somewhat more resilient, but no asset is immune in the current environment.

And then just from an NAV perspective, just given where you think cap rate either were or maybe are today?

I think that's really a question for you to come to a judgment as I'm sure you will, we've never disclosed at NAV as such, and not look going to disclose on today.

And then on G&A, when would you expect to get to that normalized G&A and no longer have the transformation costs associated with it?

Yes, it's a good question. So look, the G&A, first thing I would say is, we've obviously taken several steps. And you have to remember the history here, which is that a bit over 18 months ago, we really had two companies side by side, two independent cost structures effectively sort of seasonally down. And we've taken initial steps to streamline those into one single company, one single cost structure and we've begun to really see the benefits of that in the run rate core G&A. Going forward, we've been pretty clear that as the transformation concludes, we see the room -- we see room for greater savings from this point. That is going to be linked to a couple of factors that drive that. One is the timing of the completion of the transformation, but also what you do with the proceeds has implications as well. So I think we've done a decent amount so far. We definitely see more room from this point to run more efficiently. I think we've been pretty cognizant in the way that we've also managed expenses in what has been quite an inflationary environment as we all know, and we'll continue to exercise with same prudence. And as we conclude the transformation, based on the use of proceeds, that's ultimately determined working with the Board and the SLC, there'll be a varying range of savings, but we anticipate further savings from here in any scenario once…

And then just finally, it looks like that Kushner just responded to your letter this morning indicating that it is fully capitalized and committed. But from a Board perspective, and I recognize there's probably limited stuff you can say, but just are you committed or is the Board committed to kind of exploring all strategic alternatives, regardless of this individual kind of solicitation?

Look, I can't comment on that. I haven't seen that. And as I said, I wouldn't be looking to comment specifically on that proposal. What I would tell you, and I can say this assuredly is that we have an independent, transparent Board that's highly focused on value creation and has been from the beginning, acutely aware of their fiduciary responsibilities as we are as a management team. And we have and we'll continue to evaluate any opportunity to create and/or undock value for shareholders.

[Operator Instructions] The next question comes from Tom Catherwood from BTIG.

Maybe Mahbod, going through the sub, it looks like you've taken down some of your expectations for land values in the resi and the office side of the portfolio. We recently got what I think is a pretty good comp on a land sale in Jersey City, which should -- I would argue was probably of a lower quality and location than your portfolio. What's for you really driving that downward adjustment in your planned value estimates?

Well, obviously, we've seen -- you've seen rates rise in the rapid fashion that they have. And I think just as downing of that, we'll see some impact. We've just taken really a prudent, some might say conservative approach to marking the land as well. But what I would tell you is, ultimately, that land is, as you say, very high quality, well located, one would expect extremely sort faster and scarce. And so nothing to be in super safe. But I think in this environment, we always take something of a conservative approach when it comes to looking at values.

And is that -- so that's more a kind of general market value assessment? Or is it a -- we have specific pricing now on these and we have to adjust downward or a combination of both?

No, it's generally taking a conservative view on value given that we're just not in the same environment that we were in, of course…

And maybe, Amanda, I appreciate your commentary about the roll down from gross to net proceeds on Harborside 1, 2 and 3. But maybe as we think a little more broadly given that sale and the recent closing of the 101 Hudson, how much can you shield without having to either pay a reinstitute the dividend or pay a specific dividend -- special dividend when it comes to these asset sale proceeds?

So Tom, I think -- the question is very much going to be -- if you don't mind, I'll take that. The question could be very much linked to, I think, future assets sales and the value realized for those, on the timing of those within any given period. But, obviously, to the extent that there is a mandatory dividend that's required, then we will pay that in consistent with our obligations as a REIT. Your expectation should be that based on what we've announced so far that not -- that is not the case.

And then maybe the last one from me is comment on Haus25, obviously not yet being at its stabilized run rate. That James has obviously just come into the portfolio as well. And it looks like there has been a pickup in expectation on stabilized NOI for that asset. But when we think maybe about the direction of debt-to-EBITDA for the company, it's ticked down materially since the first quarter as we get more NOI coming on from these multifamily assets, what is your expectation to the trajectory for that metric as we look maybe through the balance of this year and into next year?

Look, I think it's a good question. And as you've observed, we have really largely repaid debt with the proceeds of asset sales to date and brought that down. As Amanda mentioned, that is a number that is somewhat sensitive as well to earnings, which are fluctuating given the transformation. I think at this point to give any guidance on trajectory really would be inappropriate because it's largely going to be driven by the timing of future asset sales, the use of proceeds from those sales. But certainly something that's been a focus for us, and we have been able to reduce it so to say to date.

Yes. I totally get it, but definitely not looking for guidance. I guess the question is, does it -- and it can move from quarter-to-quarter totally understood. Is it stable? Is it trending downward kind of directionally? Is there anything we can take away from it? Or is it just too early to get a read?

I mean -- so look, I think you said it, we've got between The James and Haus25, there's additional income contribution there. The remainder of the nonstrategic assets that we've got, if you think about Harborside 5 and 6, if you consider potentially some of the lands in that, it's not really generating any income at this point. So it's not really helping your net debt-to-EBITDA number because it's not generating any or meaningful EBITDA. So that's why I said -- but there's a significant amount of equity trapped in those assets because that's for the equity fund, there's no debt on Harborside 5, 6 on the land rate. So that's why I say it is a function of the timing of those sales and what the ultimate use of proceeds is and ultimately, debt repayment or something else that's ultimately accretive. But at the moment, we're carrying, not insignificant amount of equity that is not yielding any EBITDA or very little in the case of Harborside 5 and 6.

The next question comes from John Pawlowski from Green Street Advisors.

Mahbod, could you give us a sense for just how much or how large of a nonrefundable gold deposit is down for Harborside 1, 2 and 3. I'm just trying to get a sense for the chances that, that transaction falling through between now and the first quarter of next year.

We're actually not permitted to disclose that under the terms of the contract or the identity of the buyers. So I'm afraid I can't disclose it. But what I would tell you is that it's a buyer that we've diligenced and based on what we and our advisors understand that the buyer has transacted over three decades, including during pretty challenging market conditions and including quite heavy lifts value office repositioning investments. And so sitting here today, we feel good about the likelihood of that transaction closing. Obviously, given the challenges and the uncertainty out there, nothing is done until it's done, but we feel pretty good about that as we sit here today.

I know a lot can change between now and when you get the proceeds, but can you help us think through a reasonable base case on how on the redeployment of the capital of these office sales as you stand today, what proportion will be targeted towards debt reduction versus apartment acquisitions, et cetera. Could you give us a little bit of color on how you think you're going to put this cash back to work?

John, as you said, I think it's a little bit early. I mean, we would need to be a bit closer to the time that we're coming to realize those proceeds and then evaluate on a closer to real-time basis, what the highest and best use is for that capital based on the alternatives that are available to us, and that's a discussion that we will be happy with the Board and the strategic review committee to ultimately determine and look forward updating you as you go.

Two quick modeling questions, if I can slip them in. October occupancy. And then I know you're not giving '23 guidance, but expenses have been quite variable and you've communicated them. So can you just give us a sense for 4Q expense growth that you expect?

Well, directionally, I would say the strategy really this year was -- has been to push rents and somewhat compromised occupancy, which you started to see the store start. I'd honestly say there would be -- we're expecting a meaningful change in occupancy between now and year-end. As for expenses, look, it's in a pretty uncertain inflationary environment still today and so I think anybody has full clarity on how next year shapes out in term of the inflation and the impact on cost. But I would say is we've been pretty thoughtful in the way that we've managed our expenses this past year to try to mitigate the controllable side of the equation, what's been obviously more challenging is in the noncontrollable expenses, where we've seen taxes rise and actually disproportionately higher than some other areas here in Jeremy City.

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

Thank you, everyone, for joining us. We're pleased to announce another great quarter and 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 your lines.