Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Veris Residential Inc (VRE, Financial) reported a strong operational and financial performance for Q2 2024, with a 95.1% occupancy rate and 5.9% NOI growth.
- The company secured a new $500 million credit facility and term loan, reducing overall debt by $168 million.
- Veris Residential Inc (VRE) achieved a 5% blended net rental growth in the first half of the year, with significant rent premiums compared to industry peers.
- The company has implemented innovative solutions, including AI-based leasing assistant 'Quint,' which has improved operational efficiency and resident experience.
- Veris Residential Inc (VRE) has made significant progress in reducing emissions and increasing the share of green-certified buildings in its portfolio.
Negative Points
- The company decided to withdraw its recent public offering of common stock for the proposed acquisition of 55 River Workplace, citing unintended signaling concerns.
- Veris Residential Inc (VRE) reported a net income of only $0.03 per fully diluted share for Q2 2024, compared to a net loss of $0.3 in the prior year.
- The company is facing higher property expenses, with an 8.8% increase year-to-date, driven by higher lease turn costs and other factors.
- Veris Residential Inc (VRE) has a high net debt to EBITDA ratio of 11.8 times, indicating significant leverage.
- The company expects a temporary impact on NOI due to unit renovations at Liberty Towers, which was not included in the initial 2024 guidance.
Q & A Highlights
Q: Hi, this is Stephen on for Josh. Thanks for the time and then the first question I have is on the June or July leasing updates.
A: Good morning. Thank you for the question. We do, I would say it's a touch above the mid-single digits, around about 6% for July.
Q: Got it. Thanks. And then my second question is on the same-store expense guidance. In the supplemental. You said there is a for favorable initial indication of insurance and real estate taxes. Can you maybe provide more color on that? Like what do you see on the two fronts?
A: Yes, it's a little bit early, especially on the tax side. Because there we don't really have clarity until the latter part of Q3. But certainly given what we've seen in terms of tax increases and the tax rate on particular year before last, we would expect that hopefully to be not as material as it had been on the insurance side, I think we've built in an assumption into guidance that again reflected where we've seen insurance premiums go the last couple of years and certainly looking at some of the payers and what they've been experiencing and some early some initial indications or an initial indication, although I should say for ourselves, the number seems to be surprising to the upside and this year. And so we've made a minor adjustment to reflect that.
Q: Hi, good morning. This is Sun Care filling in for Steve, while you mentioned that do a monitor, as you mentioned, that the blended lease rates for July are passing in data about me, mid-single digits and then you've done 7% revenue growth in the first half of the year. And your guide, you are now guiding to 4.5 on in terms of sensor revenue growth. Can you help us think through how what you're thinking in terms of second half of the year, like the expectations around second half of the year for the revenue, sir, thank you for the question.
A: So for this quarter, we posted a year to date revenue growth of 6.9%. And in that there are two one-time items in the first half of the year. So we had termination fee income, which we recognized throughout the first half. And then we also had a in the first quarter of 25 As we noted last quarter lapped the period when it was stabilizing. And so those two factors together combined it represent about 250 basis points of the revenue growth that we're posting right now. And so if you back that out of the 6.9, you get to about 4.3%, which is right in the middle of our guidance range.
Q: And then on the expense side, R&M and property taxes, which are like media competence, other expenses have grown a lot in the first half of the year. How does, how should we think about that in the second half of the year?
A: So for R&M, that is elevated this quarter as as I just said, how stabilized in the first quarter of last year. And so as a result, we had an elevated amount of leases like roughly 25% of those leases. And that turned in the first quarter and so there is a higher number of leases turning overall for the portfolio and that drove up turn costs which you go through repair and maintenance in the second quarter. So that's what's driving that. I think as you look into the second half of the year for that line item, you should see a more normalized figure. And then in terms of real estate taxes, as Bob just said, that resets in the second half of the year in the third quarter for us and so on. When we know more, we'll have more to share there.
Q: Thanks. Can you talk about what's driving the sequential drop in core FFO between the second quarter and the third quarter? It looks like you're expecting around a 7 million drop based on your guidance. So just wanted to confirm that. And then if you could maybe point out the items that are taking you down by 7 million, and that would be helpful.
A: So in the second quarter guide at the moment in the second quarter of core FFO, we have $4 million roughly or $0.04 of one-time items that occurred about 2.6 million of it is related to the Urby tax credit that's reoccurring. We recognize that every year, but it's all recognized in this quarter. And then the other two items that we're seeing are on, yes, $1 million related to higher interest expense from having higher cash balances. And then and we expect to have no excess cash on deposit in the third quarter as we've utilized all of our cash for debt repayment. And then the other factor is real estate tax appeals. We had a successful resolution there for some of the sold Harborside assets. And so that was recognized in this quarter as well.
Q: I guess why would interest expense go up in the third quarter? I guess I would think that you held on cash longer presumably paid off debt later that would make interest expense go down relative to the quarterly run rate. And then I guess second part of the question is you're guiding to kind of like $0.11 per quarter. Is that like the right run rate or run rate to think about going into next year? Or is there something that would cause that to sort of go up in the first half of next year, I guess you mentioned $0.04 that you see on a recurring basis each year in the first half that you don't that you don't see in there in the second half.
A: So super stuff on interest interest income is the driver of the on the $0.01 variance for this quarter, and that's on noninterest expense and on and then in terms of your question and and and hold on once again. And then in terms of the remainder of the year, we haven't provided any guidance. So I don't have Tom, anything to say on the run rate for next year and Omar, but if you want to add anything. Yes, no, just so just to add yes, I think it's an unsaid. We had a number of one-time items that meant that this quarter it is particularly strong and we reflected the full year guidance to reflect that on that Urby tax credit, net interest income on cash balances that were higher than initially expected because we sold nonstrategic assets or completed those sales sooner than expected. And then rates also that we earn on that cash on deposit remained higher for longer. And then we had the successful tax appeals. And so that's or what we made this quarter, particularly strong at the $0.18. But on the revenue side, we reiterate the guidance that we put out there on last quarter. And I think that still very much reflects on a full year basis, our current expectations of the operational outlook for the business where this has an impact is a slight impact on the expense side,
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
