Veris Residential(VRE) - 2023 Q2 - Quarterly Report

Part I – Financial Information Item 1. Financial Statements (unaudited) The company presents unaudited consolidated financial statements and detailed notes for Veris Residential, Inc. and Veris Residential, L.P - The financial statements are prepared in accordance with GAAP for interim financial information and SEC rules, and reflect all normal, recurring adjustments necessary for a fair statement[21] - Results for the three and six months ended June 30, 2023, are not necessarily indicative of the full fiscal year[23] Veris Residential, Inc. Consolidated Financial Statements This section provides the consolidated financial statements for Veris Residential, Inc, detailing its financial position and performance Veris Residential, Inc. Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :--------------------------------- | :-------------- | :---------------- | | Total assets | $3,772,833 | $3,920,768 | | Total liabilities | $2,384,584 | $2,006,200 | | Total equity | $1,348,018 | $1,399,337 | Veris Residential, Inc. Consolidated Statements of Operations Highlights (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total revenues | $68,729 | $53,813 | $135,688 | $103,314 | | Total expenses | $65,257 | $63,613 | $131,440 | $130,304 | | Net (loss) income | $(30,135) | $34,650 | $(46,365) | $30,123 | | Net (loss) income available to common shareholders | $(27,434) | $26,373 | $(47,407) | $17,281 | | Basic EPS | $(0.30) | $0.25 | $(0.56) | $0.12 | | Diluted EPS | $(0.30) | $0.25 | $(0.56) | $0.12 | Veris Residential, Inc. Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--------------------------------- | :--------------------------- | :--------------------------- | | Net cash provided by operating activities | $24,364 | $45,710 | | Net cash provided by investing activities | $451,634 | $155,074 | | Net cash used in financing activities | $(99,093) | $(198,810) | | Net increase in cash and cash equivalents | $376,905 | $1,974 | | Cash, cash equivalents and restricted cash, end of period | $424,554 | $53,429 | Veris Residential, L.P. Consolidated Financial Statements This section presents the consolidated financial statements for Veris Residential, L.P, reflecting the Operating Partnership's financial position Veris Residential, L.P. Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :--------------------------------- | :-------------- | :---------------- | | Total assets | $3,772,833 | $3,920,768 | | Total liabilities | $2,384,584 | $2,006,200 | | Total equity | $1,348,018 | $1,399,337 | Veris Residential, L.P. Consolidated Statements of Operations Highlights (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total revenues | $68,729 | $53,813 | $135,688 | $103,314 | | Total expenses | $65,257 | $63,613 | $131,440 | $130,304 | | Net (loss) income | $(30,135) | $34,650 | $(46,365) | $30,123 | | Net loss (income) available to common unitholders | $(30,116) | $29,068 | $(52,125) | $19,078 | | Basic EPU | $(0.30) | $0.25 | $(0.56) | $0.12 | | Diluted EPU | $(0.30) | $0.25 | $(0.56) | $0.12 | Veris Residential, L.P. Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--------------------------------- | :--------------------------- | :--------------------------- | | Net cash provided by operating activities | $24,364 | $45,710 | | Net cash provided by investing activities | $451,634 | $155,074 | | Net cash used in financing activities | $(99,093) | $(198,810) | | Net increase in cash and cash equivalents | $376,905 | $1,974 | | Cash, cash equivalents and restricted cash, end of period | $424,554 | $53,429 | Notes to Consolidated Financial Statements These notes provide critical context for the financial statements, covering accounting policies, transactions, debt, equity, and segment performance 1. Organization and Basis of Presentation The company, a REIT controlling its Operating Partnership, has transitioned to a pure-play multifamily focus with GAAP-compliant statements - Veris Residential, Inc. (General Partner) owned approximately 91.2% common unit interest in the Operating Partnership as of June 30, 2023, up from 90.7% at December 31, 2022[48] - The Company has completed its transition to a pure-play multifamily REIT, focusing on socially, ethically, and environmentally responsible business practices[49] - As of June 30, 2023, the Company owned or had interests in 24 multifamily rental properties and non-core assets including three office properties and four parking/retail properties[51] - Post-period event: On July 25, 2023, the Company acquired all Preferred Units from Rockpoint for $520 million, funded by a new $60 million revolving credit facility and a $115 million term loan, along with cash on hand[52] 2. Significant Accounting Policies This section outlines key accounting policies for rental property valuation, cost capitalization, and the reinstatement of a quarterly dividend - Rental properties are reported at cost less accumulated depreciation and amortization; acquisition, development, and construction costs are capitalized[60] Net Investment in Rental Property (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :-------------------------------------- | :-------------- | :---------------- | | Land held for development | $256,190 | $264,934 | | Development and construction in progress | $36,601 | $205,173 | | Total | $292,791 | $470,107 | - The Board of Directors reinstated a quarterly dividend of $0.05 per common share, payable October 10, 2023, to shareholders of record as of September 30, 2023, following the transition to a pure-play multifamily REIT[64][66] 3. Recent Transactions The company has classified its former office and hotel portfolio as discontinued operations and recognized impairment charges on certain assets held for sale - The Company's former New Jersey office and hotel portfolio is classified as discontinued operations, marking a strategic shift[68] - As of June 30, 2023, two office properties (0.6 million sq ft) and several developable land parcels are held for sale, with estimated net sales proceeds of approximately $131.7 million[69][71] - Impairment charges of $3.6 million (three months) and $7.0 million (six months) were recognized for one office and three land parcels held for sale, as carrying values were not expected to be recovered[70] Dispositions of Rental Property and Developable Land (Six Months Ended June 30, 2023) (in thousands) | Property | Type | Net Sales Proceeds | Net Carrying Value | Realized Gains (Losses), net | | :---------------------- | :----- | :----------------- | :----------------- | :--------------------------- | | XS Hotels | Hotel | $93,358 | $92,578 | $780 | | Harborside 1, 2 and 3 | Office | $362,446 | $362,304 | $142 | | Columbia-Honeywell | Land | $8,214 | $8,236 | $(22) | | Totals | | $464,018 | $463,118 | $900 | 4. Investments in Unconsolidated Joint Ventures The company holds $122.4 million in equity method joint ventures, with increased earnings driven by improved operating performance - As of June 30, 2023, the Company had an aggregate investment of approximately $122.4 million in its equity method joint ventures[76] - Unconsolidated joint ventures own seven multifamily properties (2,146 units), a retail property (51,000 sq ft), and developable land for up to 829 apartment units[76][77] - The Company guaranteed $2.0 million of the $18.2 million outstanding debt of its unconsolidated joint ventures as of June 30, 2023[79] Company's Equity in Earnings of Unconsolidated Joint Ventures (in thousands) | Period | 2023 | 2022 | | :--------------------------- | :----- | :----- | | Three Months Ended June 30, | $2,700 | $2,638 | | Six Months Ended June 30, | $2,633 | $2,151 | - The increase in equity in earnings is primarily due to improved operating performance of unconsolidated joint ventures, driven by higher occupancy and rental rates[240][256] 5. Deferred Charges and Other Assets, Net This section details deferred charges and other assets, including the use of interest rate caps to manage interest rate risk Deferred Charges and Other Assets, Net (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :-------------------------------------- | :-------------- | :---------------- | | Deferred charges, net | $4,173 | $35,864 | | Notes receivable | $78 | $1,309 | | In-place lease values, related intangibles and other assets, net | $10,554 | $12,298 | | Right of use assets | $6,645 | $2,238 | | Prepaid expenses and other assets, net | $37,511 | $44,453 | | Total deferred charges and other assets, net | $58,961 | $96,162 | - The Company uses interest rate swaps and caps as cash flow hedges to manage interest rate risk[90] - Approximately $6.4 million is estimated to be reclassified as a decrease to interest expense from accumulated other comprehensive income related to derivatives over the next 12 months[92] - As of June 30, 2023, the Company had four interest rate caps outstanding with a notional amount of $548 million designated as cash flow hedges[92] 6. Restricted Cash Restricted cash totals $27.6 million, primarily comprising tenant security deposits and various escrow and reserve funds Restricted Cash (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :-------------------------- | :-------------- | :---------------- | | Security deposits | $10,009 | $9,175 | | Escrow and other reserve funds | $17,605 | $11,692 | | Total restricted cash | $27,614 | $20,867 | 7. Discontinued Operations The company's entire Office Portfolio is classified as discontinued operations, with income from these operations decreasing significantly in Q2 2023 - The Company's entire Office Portfolio (43 office properties and three hotels) has been classified as discontinued operations, reflecting a strategic shift[96][98] - As of June 30, 2023, all but two of the 43 office properties and three hotels (totaling 10.6 million square feet) have been sold[97][98] Income from Discontinued Operations (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Income from discontinued operations | $140 | $5,808 | $2,356 | $32,237 | | Realized gains (losses) and unrealized losses on disposition of rental property and impairments, net | $(3,488) | $(4,440) | $(2,709) | $(2,604) | | Total discontinued operations, net | $(3,348) | $1,368 | $(365) | $23,344 | 8. Revolving Credit Facility and Term Loans The company terminated its 2021 credit agreement and entered a new agreement in July 2023 to fund the Rockpoint Redemption - The 2021 Credit Agreement was terminated on April 7, 2023, resulting in a $2.7 million write-off of unamortized deferred financing costs[101] - On July 25, 2023, a new 2023 Credit Agreement was established, including a $60 million senior secured revolving credit facility and a $115 million senior secured term loan[102] - Both the 2023 Revolving Credit Facility and 2023 Term Loan have a one-year term (ending July 2024) with a six-month extension option and are secured by 'The James' multifamily property[103][104] - The Company drew the full $115 million term loan and $52 million from the revolving credit facility on July 25, 2023, to fund the Rockpoint Redemption[109] - The 2023 Credit Agreement includes financial covenants such as maximum total leverage ratio (65%), minimum debt service coverage ratio (1.25x), minimum tangible net worth ratio, and maximum unhedged variable rate debt ratio (30%)[107] 9. Mortgages, Loans Payable and Other Obligations The company's debt totals $1.82 billion, is primarily fixed-rate or hedged, and is collateralized by 16 properties - As of June 30, 2023, 16 of the Company's properties (carrying value ~$2.6 billion) are encumbered by mortgages and loans payable[110] Summary of Indebtedness (in thousands) | Category | June 30, 2023 Balance | June 30, 2023 Weighted Average Interest Rate | December 31, 2022 Balance | December 31, 2022 Weighted Average Interest Rate | | :----------------------- | :-------------------- | :------------------------------------- | :-------------------- | :------------------------------------- | | Fixed Rate & Hedged Debt | $1,820,981 | 4.32% | $1,757,308 | 4.27% | | Other Variable Rate Debt | — | —% | $146,669 | 6.86% | | Totals/Weighted Average | $1,820,981 | 4.32% | $1,903,977 | 4.47% | - Cash paid for interest for the six months ended June 30, 2023, was $40.1 million, up from $37.0 million in 2022[115] - Interest capitalized by the Company for the six months ended June 30, 2023, was zero, compared to $10.5 million in 2022[115] - The Company was in compliance with its debt covenants as of June 30, 2023[110] 10. Employee Benefit 401(k) Plans The company offers a 401(k) plan with discretionary matching contributions, with total plan expenses decreasing in Q2 2023 - Employees can defer 1% to 60% of annual compensation to the 401(k) Plan; contributions are immediately vested[118] - Company matching/profit-sharing contributions vest at 20% per year after two years of service, reaching 100% after six years[118] 401(k) Plan Expense (in thousands) | Period | 2023 | 2022 | | :--------------------------- | :----- | :----- | | Three Months Ended June 30, | $129 | $148 | | Six Months Ended June 30, | $277 | $330 | 11. Disclosure of Fair Value of Assets and Liabilities The company uses Level 3 inputs to estimate the fair value of its long-term debt and real estate assets, recognizing impairment charges on some - Fair value of long-term debt was approximately $1.7 billion (book value $1.8 billion) as of June 30, 2023, estimated using Level 3 inputs (discounted cash flow analysis)[121] - Derivative financial instruments are classified in Level 2 of the fair value hierarchy, as credit valuation adjustments (Level 3 inputs) are not significant to the overall valuation[121] - Fair value measurements for rental properties and real estate held for sale are Level 3 valuations, relying on unobservable assumptions (discount rates, market capitalization rates, expected rental rates, estimated sales prices)[123][124] - Impairment charges of $3.6 million (three months) and $7.0 million (six months) were recognized for one office and three land parcels held for sale due to unrecoverable carrying values[126] 12. Commitments and Contingencies The company has commitments related to PILOT agreements, leases, and employee stay-on awards, with no material litigation expected PILOT Payments (in thousands) | Period | 2023 | 2022 | | :--------------------------- | :----- | :----- | | Three Months Ended June 30, | $1,955 | $3,016 | | Six Months Ended June 30, | $4,055 | $6,191 | Future Minimum Rental Payments for Office and Ground Leases (in thousands) | Year | Amount | | :------------------------ | :------- | | July 1 through December 31, 2023 | $636 | | 2024 | $1,272 | | 2025 | $1,279 | | 2026 | $1,279 | | 2027 | $1,280 | | 2028 through 2101 | $31,940 | | Total lease payments | $37,686 | | Less: imputed interest | $(29,948) | | Total | $7,738 | - The Company has outstanding stay-on award agreements with 23 employees, with a total potential cost of approximately $2.9 million, contingent on remaining with the Company until certain corporate transactions occur[138][139] 13. Tenant Leases The company's commercial leases expire through 2032, with future minimum rentals totaling $52.12 million - Consolidated office properties are leased under operating leases with various expiration dates through 2032, including base rents, recoveries, and escalation charges[140] Future Minimum Rentals from Non-Cancelable Commercial Operating Leases (in thousands) | Year | Amount | | :------------------------ | :------- | | July 1 through December 31, 2023 | $6,718 | | 2024 | $12,084 | | 2025 | $10,952 | | 2026 | $8,822 | | 2027 | $5,749 | | 2028 and thereafter | $7,795 | | Total | $52,120 | - Multifamily residential leases are excluded from the table as they generally expire within one year[141] 14. Redeemable Noncontrolling Interests The company reclassified and subsequently redeemed Rockpoint's Preferred Units for $520 million post-period - Preferred Units held by Rockpoint were reclassified as mandatorily redeemable noncontrolling interests in Q2 2023 after VRT exercised its call right[155] - The estimated future redemption value of Rockpoint's Preferred Units was approximately $487.6 million as of June 30, 2023[156] - On July 25, 2023 (post-period), VRT and the Operating Partnership acquired all of Rockpoint's Preferred Units for an aggregate purchase price of $520 million, terminating the Original and Add On Investment Agreements[157][320][321] - The Operating Partnership also has Series A and A-1 Preferred Limited Partnership Units, which are redeemable for cash at their stated value at the option of the holder, beginning five years from issuance[159][162] 15. Veris Residential, Inc. Stockholders' Equity and Veris Residential, L.P.'s Partners' Capital This section details the equity structure and compensation plans for both the General Partner and the Operating Partnership - The General Partner's Charter includes restrictions on common stock transfer to maintain REIT qualification (not more than 50% owned by five or fewer individuals)[165] Veris Residential, Inc. Stockholders' Equity Activity (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Opening Balance | $1,216,530 | $1,275,681 | $1,235,685 | $1,281,982 | | Net (loss) income available to common shareholders | $(27,434) | $26,373 | $(47,407) | $17,281 | | Stock Compensation | $3,381 | $2,509 | $6,852 | $4,466 | | Other comprehensive income (loss) | $1,399 | $(54) | $541 | $1,932 | | Balance at June 30 | $1,196,953 | $1,296,280 | $1,196,953 | $1,296,280 | - The Company has a Dividend Reinvestment and Stock Purchase Plan (DRIP) with 5.4 million shares reserved for issuance[169] - Unrecognized compensation cost for unvested Restricted Stock Awards is $4.4 million (weighted average period of 1.6 years) and for unvested LTIP awards is $12.3 million (weighted average period of 1.9 years) as of June 30, 2023[177][184] Basic and Diluted EPS for Veris Residential, Inc. | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Basic EPS (Net loss/income) | $(0.30) | $0.25 | $(0.56) | $0.12 | | Diluted EPS (Net loss/income) | $(0.30) | $0.25 | $(0.56) | $0.12 | 16. Noncontrolling Interests in Subsidiaries Noncontrolling interests primarily consist of units held by Limited Partners, whose ownership in the Operating Partnership decreased to 8.8% - Noncontrolling interests in subsidiaries include common and LTIP units in the Operating Partnership held by Limited Partners, and interests in consolidated joint ventures[195] Noncontrolling Interests Activity (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Opening Balance at January 1 | $157,439 | $165,120 | $163,652 | $167,436 | | Net (loss) income | $(2,701) | $8,277 | $1,042 | $12,842 | | Redemption of common units for common stock | $(4,192) | $(161) | $(9,051) | $(161) | | Balance at June 30 | $151,065 | $170,893 | $151,065 | $170,893 | - As of June 30, 2023, noncontrolling common unitholders owned 8.8% of the Operating Partnership, compared to 9.3% at December 31, 2022[204] - Changes in ownership percentages between Veris Residential, Inc. stockholders' equity and noncontrolling interests in the Operating Partnership are accounted for as equity transactions[196][197] 17. Segment Reporting The company operates in two segments, with the multifamily real estate segment significantly outperforming the commercial segment in revenue and NOI - The Company operates in two business segments: multifamily real estate and services, and commercial and other real estate[207] - Performance is evaluated based on net operating income (NOI) from combined properties and operations, excluding discontinued operations[208] Segment Total Revenues (in thousands) | Segment | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Commercial & Other Real Estate | $4,525 | $1,379 | $8,290 | $4,865 | | Multifamily Real Estate & Services | $64,144 | $52,876 | $126,422 | $99,393 | | Corporate & Other | $60 | $(442) | $976 | $(944) | | Total Company | $68,729 | $53,813 | $135,688 | $103,314 | Segment Net Operating Income (Loss) (in thousands) | Segment | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Commercial & Other Real Estate | $1,475 | $707 | $3,593 | $3,493 | | Multifamily Real Estate & Services | $43,134 | $29,293 | $76,994 | $50,536 | | Corporate & Other | $(45,908) | $(26,799) | $(76,032) | $(58,581) | | Total Company | $(1,299) | $3,201 | $4,555 | $(4,552) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, operational results, liquidity, and capital resources, detailing revenue and expense changes - The Company, a publicly traded REIT since 1994, has over 60 years of experience in commercial real estate development, management, and ownership[218] - As of June 30, 2023, the Company owns or has interests in 31 properties (collectively, the "Properties") and developable land parcels, including 24 multifamily rental properties (7,681 units) and non-core assets[220] - Post-period event: On July 25, 2023, the Company completed the $520 million Rockpoint Redemption, funded by a new $60 million revolving credit facility and a $115 million term loan[221] Executive Overview The company highlights its real estate history, current asset portfolio, and the recent strategic shift to a pure-play multifamily REIT - Veris Residential, Inc. has been a publicly traded REIT since 1994, with over 60 years in commercial real estate[218] - The Company's portfolio as of June 30, 2023, includes 24 multifamily rental properties (7,681 units) and non-core assets (3 office, 4 parking/retail properties)[220] - On July 25, 2023, the Company completed the $520 million Rockpoint Redemption, financed by a new $60 million revolving credit facility and a $115 million term loan[221] Critical Accounting Policies and Estimates Financial statements are prepared under GAAP, requiring significant management estimates and consolidating the Operating Partnership as a VIE - Financial statements are prepared in conformity with GAAP, requiring management estimates and assumptions that can materially affect reported amounts[225] - The Operating Partnership is considered a variable interest entity (VIE) of the parent company, Veris Residential, Inc., with its financial results consolidated[223][224] - Certain reclassifications were made to prior period amounts to conform with current period presentation, primarily related to discontinued operations[225] Results From Operations This section analyzes operational performance, detailing changes in revenues and expenses across different property categories Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022 Revenues increased 28.7%, but a net loss was recorded due to higher interest costs and the absence of a large prior-year land sale gain Key Financial Performance (Three Months Ended June 30, in thousands) | Metric | 2023 | 2022 | Dollar Change | Percent Change | | :--------------------------------------- | :----- | :----- | :------------ | :------------- | | Total revenues | $68,729 | $53,813 | $14,916 | 27.7% | | Revenue from leases | $61,909 | $47,313 | $14,596 | 30.8% | | Total property expenses | $24,283 | $22,906 | $1,377 | 6.0% | | Operating income (loss) | $3,472 | $(9,800) | $13,272 | 135.4% | | Interest expense | $(21,692) | $(14,741) | $(6,951) | 47.2% | | Interest cost of mandatorily redeemable noncontrolling interests | $(13,390) | — | $(13,390) | 100.0% | | Gain (loss) on disposition of developable land | — | $55,125 | $(55,125) | (100.0)% | | Net (loss) income | $(30,135) | $34,650 | $(64,785) | (187.0)% | - Revenue from leases for Same-Store Properties increased by $5.2 million (10.9%) due to higher market rental rates and reduced concessions in multifamily properties[231] - General and administrative expenses decreased by $1.9 million (16.9%) due to lower severance costs in 2022 and cost reductions in 2023[236] - Interest and other investment income increased significantly by $3.7 million (1,977.8%) due to interest income from sales proceeds deposits[239] Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022 Revenues grew 32.1%, but the company shifted to a net loss due to substantially higher interest costs and lower gains on land sales Key Financial Performance (Six Months Ended June 30, in thousands) | Metric | 2023 | 2022 | Dollar Change | Percent Change | | :--------------------------------------- | :----- | :----- | :------------ | :------------- | | Total revenues | $134,134 | $101,507 | $32,627 | 32.1% | | Revenue from leases | $121,747 | $91,256 | $30,491 | 33.4% | | Total property expenses | $50,169 | $46,412 | $3,757 | 8.1% | | Operating loss | $4,248 | $(26,990) | $31,238 | (115.7)% | | Interest expense | $(43,706) | $(26,348) | $(17,358) | 65.9% | | Interest cost of mandatorily redeemable noncontrolling interests | $(13,390) | — | $(13,390) | 100.0% | | Gain (loss) on disposition of developable land | $(22) | $57,748 | $(57,770) | (100.0)% | | Net (loss) income | $(46,365) | $30,123 | $(76,488) | (253.9)% | - Revenue from leases for Same-Store Properties increased by $10.8 million (11.8%) due to higher market rental rates and reduced concessions in multifamily properties[247] - General and administrative expenses decreased by $11.1 million (35.9%) due to higher severance costs in 2022 and cost reductions in 2023[252] - Interest and other investment income increased significantly by $3.7 million (1,065.1%) due to interest income from sales proceeds deposits[255] Liquidity and Capital Resources Cash balances increased significantly due to investing activities, while the company reinstated its quarterly dividend to maintain REIT status - Rental revenue is the primary source of funds for operating expenses, debt service, capital expenditures, and dividends[261] - Non-recurring capital expenditures are financed through debt, equity, property sales, and joint venture capital[261] - Cash, cash equivalents, and restricted cash increased by $376.9 million to $424.6 million at June 30, 2023, from $47.6 million at December 31, 2022[270] - The increase in cash was primarily driven by $451.6 million from investing activities and $24.4 million from operating activities, offset by $99.1 million used in financing activities[270][273] - To maintain REIT qualification, the General Partner must distribute at least 90% of its REIT taxable income annually[264] - The Board of Directors reinstated a quarterly dividend of $0.05 per common share, payable October 10, 2023[265][267] Debt Financing The company's $1.83 billion debt is entirely fixed-rate or hedged, and a new credit agreement was established post-period for a major redemption Summary of Debt (in thousands) | Category | Balance ($000's) | % of Total | Weighted Average Interest Rate | Weighted Average Maturity in Years | | :------------------------ | :--------------- | :--------- | :----------------------------- | :------------------------------- | | Fixed Rate & Hedged Secured | $1,827,230 | 100.00% | 4.32% | 3.22 | | Unamortized deferred financing costs | $(6,249) | | | | | Total Debt, Net | $1,820,981 | | | | Debt Maturities (in thousands) | Period | Scheduled Amortization | Principal Maturities | Total | Weighted Avg. Effective Interest Rate | | :------------------------ | :--------------------- | :------------------- | :------ | :------------------------------------ | | 2023 (Jul-Dec) | $1,790 | $58,998 | $60,788 | 3.58% | | 2024 | $5,037 | $605,324 | $610,361 | 5.02% | | 2025 | $8,384 | — | $8,384 | 3.39% | | 2026 | $8,780 | $483,000 | $491,780 | 4.23% | | 2027 | $8,158 | $305,319 | $313,477 | 3.66% | | Thereafter | $7,418 | $335,022 | $342,440 | 3.98% | | Sub-total | $39,567 | $1,787,663 | $1,827,230 | 4.32% | | Unamortized deferred financing costs | $(6,249) | — | $(6,249) | | | Totals/Weighted Average | $33,318 | $1,787,663 | $1,820,981 | 4.32% | - The 2021 Credit Agreement was terminated on April 7, 2023, resulting in a $2.7 million write-off of unamortized deferred financing costs[276] - A new 2023 Credit Agreement was entered into on July 25, 2023, providing a $60 million revolving credit facility and a $115 million term loan, both secured by 'The James' multifamily property[277][278][279] - The proceeds from the new credit facilities were used to fund the $520 million Rockpoint Redemption[285] Off-Balance Sheet Arrangements The company has guaranteed $2 million of its unconsolidated joint ventures' non-recourse debt - Debt of unconsolidated joint ventures is generally non-recourse to the Company[294] - As of June 30, 2023, the Company guaranteed $2 million of the $18.2 million outstanding debt of its unconsolidated joint ventures[294] Funds from Operations FFO decreased significantly to $7.87 million for the first half of 2023, down from $80.82 million in the prior year - FFO is defined as net income (loss) before noncontrolling interests in Operating Partnership, excluding gains/losses from depreciable rental property transactions and impairments, plus real estate-related depreciation and amortization[297] Funds from Operations (FFO) Available to Common Stock and Operating Partnership Unitholders (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net (loss) income available to common shareholders | $(27,434) | $26,373 | $(47,407) | $17,281 | | Real estate-related depreciation and amortization on continuing operations | $26,064 | $23,413 | $52,053 | $44,352 | | Real estate-related depreciation and amortization on discontinued operations | $275 | $6,863 | $5,231 | $14,784 | | Discontinued operations: Realized (gains) losses and unrealized (gains) losses on disposition of rental property, net | $3,488 | $4,440 | $2,709 | $2,604 | | Funds from operations available to common stock and Operating Partnership unitholders | $(289) | $63,784 | $7,868 | $80,818 | Disclosure Regarding Forward-Looking Statements This section cautions readers that forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ - The report contains forward-looking statements subject to inherent risks, trends, and uncertainties[301] - Readers are cautioned not to place undue reliance on forward-looking statements, as actual results may differ materially[301] - Factors influencing forward-looking statements include general economic climate, real estate asset values, tenant bankruptcies, leasing ability, changes in supply/demand, interest rate volatility, operating costs, insurance, creditworthiness, and governmental regulations[302][308] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuation, which it manages through fixed-rate debt and hedging instruments - The Company's primary market risk exposure is from interest rate fluctuations on its indebtedness[304] - Risk is managed by utilizing fixed-rate indebtedness or hedging floating-rate debt with interest rate swaps or caps[304] - As of June 30, 2023, approximately $1.8 billion of long-term debt bore interest at fixed rates[305] - A 100 basis point increase or decrease in market rates on variable rate debt would result in an approximate $5.5 million annual change in interest costs (assuming no swaps/caps)[305] Debt Principal Cash Flows and Weighted-Average Interest Rates (June 30, 2023, in thousands) | Period | Fixed Rate Debt | Weighted Average Interest Rate | | :---------------- | :-------------- | :----------------------------- | | 7/1/23 - 12/31/2023 | $60,788 | 3.58% | | 2024 | $610,361 | 5.02% | | 2025 | $8,384 | 3.39% | | 2026 | $491,780 | 4.23% | | 2027 | $313,477 | 3.66% | | Thereafter | $342,440 | 3.98% | | Total | $1,827,230 | 4.32% | Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes in internal controls - Disclosure controls and procedures for both Veris Residential, Inc. and Veris Residential, L.P. were evaluated and deemed effective as of June 30, 2023[309][311] - No material changes in internal control over financial reporting occurred during the fiscal quarter[310][312] Part II – Other Information Item 1. Legal Proceedings There are no material pending legal proceedings against the company other than routine litigation incidental to its business - No material pending legal proceedings exist, beyond ordinary routine litigation[315] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K - No material changes to risk factors from the Annual Report on Form 10-K for December 31, 2022[316] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company issued 270,585 shares of common stock in private offerings to common unit holders upon redemption of their units - 270,585 shares of common stock were issued in private offerings to common unit holders of the Operating Partnership upon redemption during Q2 2023[317] - These sales were conducted pursuant to Section 4(a)(2) of the Securities Act, with holders being accredited investors[317] Item 3. Defaults Upon Senior Securities This item is not applicable to the company for the reporting period Item 4. Mine Safety Disclosures This item is not applicable to the company for the reporting period Item 5. Other Information This section details the significant post-period $520 million Rockpoint Redemption and the new credit facilities secured to fund it - On July 25, 2023, VRT and the Operating Partnership acquired all of Rockpoint's Preferred Units (Put/Call Interests) for $520 million (Rockpoint Redemption)[319][320] - The Rockpoint Redemption terminated the Original and Add On Investment Agreements and all related rights and obligations with Rockpoint[321] - Concurrently, the Operating Partnership entered into a new 2023 Credit Agreement, establishing a $60 million senior secured revolving credit facility and a $115 million senior secured term loan[323][324] - Both new credit facilities have a one-year term (extendable by six months), are secured by 'The James' multifamily property, and were used to fund the Rockpoint Redemption[325][326][331] - The 2023 Credit Agreement includes financial covenants (e.g., max total leverage ratio 65%, min debt service coverage ratio 1.25x) and a mandatory cash sweep provision[328] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate documents, key agreements, and Sarbanes-Oxley certifications - The exhibit index includes key corporate documents such as Articles of Amendment, Bylaws, and the Rockpoint Purchase Agreement[337] - It also lists the new Revolving Credit and Term Loan Agreement, Parent Guaranty, Subsidiary Guaranty, and Pledge and Security Agreement[337] - Certifications from the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act are included for both the General Partner and Operating Partnership[337] Signatures The report is duly signed by the Chief Executive Officer and Chief Financial Officer as of July 26, 2023 - The report is signed by Mahbod Nia (CEO) and Amanda Lombard (CFO) for both Veris Residential, Inc. and Veris Residential, L.P. on July 26, 2023[342]