Veris Residential(VRE) - 2020 Q2 - Quarterly Report

Explanatory Note Explanatory Note This combined report for Mack-Cali Realty Corporation and its Operating Partnership streamlines disclosure for a holistic business view - This is a combined Form 10-Q for Mack-Cali Realty Corporation (General Partner) and Mack-Cali Realty, L.P. (Operating Partnership)[9] - The General Partner is a REIT and serves as the sole general partner of the Operating Partnership, which conducts all business operations[10] - As of June 30, 2020, the General Partner owned approximately 90.4% of the common unit interest in the Operating Partnership, with the remaining 9.6% held by limited partners[11] - The main differences in the financial statements between the two entities lie in the presentation of shareholders' equity, partners' capital, and noncontrolling interests[16] Part I – Financial Information Financial Statements This section presents the unaudited consolidated financial statements for the three and six months ended June 30, 2020 and 2019 Mack-Cali Realty Corporation Financial Statements Mack-Cali Realty Corporation - Key Balance Sheet Data (in thousands) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $5,360,012 | $5,292,798 | | Total Liabilities | $3,257,561 | $3,089,941 | | Total Equity | $1,593,496 | $1,699,475 | Mack-Cali Realty Corporation - Key Operational Results (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $72,650 | $86,605 | $154,707 | $176,871 | | Net Income (Loss) | $(32,934) | $(20,329) | $(70,778) | $255,265 | | Net Income (Loss) available to common shareholders | $(34,887) | $(22,054) | $(74,811) | $222,441 | | Diluted EPS | $(0.41) | $(0.43) | $(0.88) | $2.24 | Mack-Cali Realty, L.P. Financial Statements Mack-Cali Realty, L.P. - Key Balance Sheet Data (in thousands) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $5,360,012 | $5,292,798 | | Total Liabilities | $3,257,561 | $3,089,941 | | Total Equity | $1,593,496 | $1,699,475 | Mack-Cali Realty, L.P. - Key Operational Results (in thousands, except per unit amounts) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $72,650 | $86,605 | $154,707 | $176,871 | | Net Income (Loss) | $(32,934) | $(20,329) | $(70,778) | $255,265 | | Net Income (Loss) available to common unitholders | $(38,576) | $(24,488) | $(82,715) | $247,687 | | Diluted EPU | $(0.41) | $(0.43) | $(0.88) | $2.24 | Notes to Consolidated Financial Statements - As of June 30, 2020, the Company's portfolio consisted of 71 properties, including 41 office buildings (10.5 million sq ft), 22 multi-family properties (6,850 units), four parking/retail properties, and three hotels[51] - On December 19, 2019, the Company's Board decided to sell the entire suburban New Jersey office portfolio (6.6 million sq ft), now classified as discontinued operations[52][110] - During Q2 2020, the Company recognized an unrealized loss allowance of $11.9 million and land impairments of $16.8 million, partly due to COVID-19 market conditions[114] - On July 24, 2020, CEO Michael J. DeMarco was terminated without cause, and Board Chair MaryAnne Gilmartin was appointed as interim CEO[197][198] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses its strategic shift, operational results, liquidity, and the significant impact of the COVID-19 pandemic Executive Overview and Strategic Direction - The company is executing a strategic transformation to concentrate on New Jersey Hudson River waterfront office properties and luxury multi-family rentals[296] - A key part of this strategy is the sale of the entire suburban New Jersey office portfolio (6.6 million sq ft), with proceeds intended to pay down corporate-level unsecured debt[298][300] - The COVID-19 pandemic is identified as a key risk factor, potentially impairing tenants' ability to pay rent and reducing property demand[303] - The stabilized core commercial portfolio was 80.3% leased at June 30, 2020, down from 81.1% at March 31, 2020, but up from 79.8% at June 30, 2019[304] Results of Operations Comparison of Results: Three Months Ended June 30 (in thousands) | Line Item | 2020 | 2019 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $72,650 | $86,605 | $(13,955) | (16.1)% | | Total Expenses | $93,833 | $88,417 | $5,416 | 6.1% | | Income (loss) from continuing operations | $(42,734) | $(22,479) | $(20,255) | (90.1)% | | Net Income (Loss) | $(32,934) | $(20,329) | $(12,605) | (62.0)% | - For Q2 2020 vs Q2 2019, same-store parking income decreased by $2.4 million (44.4%) and hotel income decreased by $1.3 million (64.0%), primarily due to the COVID-19 pandemic[346] - General and administrative expenses increased by $0.3 million (1.7%) in Q2 2020, mainly due to higher costs ($5.0 million vs $4.1 million) related to contested elections for the Board of Directors[351] - Land and other impairments were $16.8 million in Q2 2020 compared to $2.5 million in Q2 2019[354] Liquidity and Capital Resources - The company expects to meet short-term liquidity needs through working capital, proceeds from property sales (including $305.4 million of suburban office properties under contract), operating cash flow, and its unsecured revolving credit facility[385] - As of June 30, 2020, the company has three multi-family projects under construction with total estimated costs of $711.8 million, of which $373.2 million has been incurred[390][391][392] Debt Summary as of June 30, 2020 (in thousands) | Debt Type | Balance | % of Total | Weighted Avg. Interest Rate | | :--- | :--- | :--- | :--- | | Fixed Rate Unsecured | $575,000 | 19.11% | 4.09% | | Fixed Rate Secured | $1,769,695 | 58.81% | 3.79% | | Variable Rate Secured | $335,612 | 11.15% | 3.19% | | Variable Rate Unsecured | $329,000 | 10.93% | 1.48% | | Total | $3,009,307 | 100.00% | 3.53% | Funds from Operations (FFO) FFO Reconciliation (in thousands) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) available to common shareholders | $(34,887) | $(22,054) | $(74,811) | $222,441 | | FFO available to common stock and OP unitholders | $5,004 | $32,924 | $34,675 | $72,465 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk on its variable-rate debt - The company's primary market risk exposure is to changes in interest rates[449] - A 100 basis point change in interest rates would impact annual interest costs on variable-rate debt by approximately $105.5 million[450] Controls and Procedures Management concluded that disclosure controls and procedures were effective following the implementation of a new accounting system - The CEO and CFO concluded that disclosure controls and procedures were effective for both the General Partner and the Operating Partnership as of June 30, 2020[453][455] - In January 2020, the company implemented a new accounting and reporting software system, which necessitated updates to internal controls over financial reporting[454][456] Part II – Other Information Legal Proceedings The company reports no material pending legal proceedings outside of ordinary routine litigation - There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business[459] Risk Factors This section updates risk factors, focusing on the material uncertainty and risks presented by the COVID-19 pandemic - The COVID-19 pandemic presents material uncertainty and risk to the company's business, financial condition, and cash flows[461] - Specific risks highlighted include deterioration of tenant financial health, potential negative impact on planned asset dispositions, reduced demand for office and residential space, and difficulty accessing capital markets[462] Other Information (Items 2-6) This section notes that Items 2 through 5 are not applicable and refers to the Exhibit Index for Item 6 - Items 2, 3, 4, and 5 are reported as not applicable[464][466] - Item 6 refers to the Exhibit Index for a list of filed exhibits[465]