Veris Residential, Inc. Q4 FY2024 earnings call

• Veris Residential successfully pivoted from office exposure to a pure-play multifamily REIT with core Class A properties in top markets.
• 2024 marked strong operational and financial results: NOI growth 6.9%, blended net rental growth 4%, core FFO up 13% vs 2023. Dividend raised ~60%.
• Refinanced over $526M of mortgages, reduced indebtedness by over $180M, no consolidated debt maturities until 2026.
• 2024 was third consecutive year of sector-leading same-store NOI growth. Class A portfolio NOI growth 6.9%, blended net rental growth 4%, operating margin up 160 basis points.
• Technology initiatives like PRISM, virtual community leasing assistant Quinn, and AI team member Taylor to enhance operational efficiency and reduce expenses.
• Focus on value creation through targeted investments, e.g., Liberty Towers renovation and Portside value-add project.

For 2024, Veris Residential's Class A portfolio recorded NOI growth of 6.9% compared to an average of 1.6% for the peer group. Blended net rental growth was 4%, and operating margin improved by 160 basis points. The full year saw core FFO increase by 13% compared to 2023 and 38% compared to 2022. The proposed sale of approximately $300 million to $500 million of select assets (majority being land bank) is central to the 2025 plan, with the balance being smaller less efficient multifamily assets. The land bank sale is expected to be the primary catalyst for earnings accretion, and proceeds will be used for stock buybacks and debt reduction.

• Core FFO guidance: $0.61-$0.63 per share (2%-5% growth over 2024).
• Same-store NOI growth projection: 1.7%-2.7%.
• Revenue growth projection: 2.1%-2.7%, with rental revenue growth 3.3% but adjusted for one-time items reducing by 60 basis points.
• Expense growth projection: 2.6%-3%, with controllable expenses relatively flat and non-controllables driving most growth.
• Plan to sell $300M-$500M of select assets and use proceeds for $100M stock buyback and debt reduction, aiming to reduce leverage below 9 times.

• Broader market challenges: economic uncertainty, inflationary pressures, higher-for-longer rate environment affecting multifamily investment market.
• Transaction market dynamics: limited liquidity for larger transactions, core investors on sidelines, contrasting dynamics in regions like Massachusetts vs Jersey City.
• Operational risks: potential impact of value-add projects on occupancy, and challenges with smaller less efficient assets.

Q: Under what environment does the Board think pursuing something larger would be more favorable?

A: It's a combination of economic outlook, rate environment, capital flows, and nature of buyers. The Board continuously evaluates options to maximize shareholder value, considering multiple factors including transaction market conditions.

Q: Could you provide more color on the $300M-$500M asset sale, including land sales and buyer perspectives?

A: Land bank is ~$180M, $100M-$130M of land in that range with $45M under binding contract. Buyer groups mixed, but opportunities exist to exit at fair value close to intrinsic value.

Q: How much of the land bank is in the market and are there entitlements updated?

A: ~$100M-$130M of land in the $300M-$500M range. Enhancing land value is a continuous process to maximize value.

Q: With the shift from equity raise to asset sales, what's the rationale?

A: Different times with significant dislocation between trading and intrinsic value, and small pockets of liquidity for smaller transactions, allowing arbitrage and value crystallization.

Q: Walk through same-store revenue build assumptions?

A: Revenue growth ~3.3% but adjusted for one-time items reducing by 60 basis points. Controllable expenses relatively flat, non-controllables driving most expense growth.

Q: How are pricing for assets being considered, especially smaller ones?

A: Operating assets in the sale are expected to be sold at low 5s cap rates, considering market conditions and asset characteristics.