Item 1. Financial Statements
The accompanying unaudited consolidated balance sheets, statements of operations, of comprehensive income (loss), of changes in equity, and of cash flows and related notes thereto, have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. The financial statements reflect all adjustments consisting only of normal, recurring adjustments, which are, in the opinion of management, necessary for a fair statement for the interim periods.
The aforementioned financial statements should be read in conjunction with the notes to the aforementioned financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in Veris Residential, Inc.’s and Veris Residential, L.P.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
The results of operations for the three month period ended March 31, 2023 are not necessarily indicative of the results to be expected for the entire fiscal year or any other period.
VERIS RESIDENTIAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) (unaudited)
| | | | | | | | | | | | | | |
| ASSETS | | March 31,
2023 | | December 31,
2022 |
| Rental property | | | | |
| Land and leasehold interests | | $ | 482,254 | | $ | 492,204 |
| Buildings and improvements | | 2,906,269 | | 3,332,315 |
| Tenant improvements | | 42,089 | | 122,509 |
| Furniture, fixtures and equipment | | 99,342 | | 99,094 |
| | 3,529,954 | | 4,046,122 |
| Less – accumulated depreciation and amortization | | (442,047) | | | (631,910) | |
| | 3,087,907 | | 3,414,212 |
| Real estate held for sale, net | | 397,499 | | 193,933 |
| Net investment in rental property | | 3,485,406 | | 3,608,145 |
| Cash and cash equivalents | | 37,487 | | 26,782 |
| Restricted cash | | 19,642 | | 20,867 |
| Investments in unconsolidated joint ventures | | 124,218 | | 126,158 |
| Unbilled rents receivable, net | | 40,960 | | 39,734 |
| Deferred charges and other assets, net | | 88,392 | | 96,162 |
| Accounts receivable | | 4,551 | | 2,920 |
| | | | |
| Total assets | | $ | 3,800,656 | | $ | 3,920,768 |
| LIABILITIES AND EQUITY | | | | |
| | | | |
| Mortgages, loans payable and other obligations, net | | $ | 1,820,498 | | $ | 1,903,977 |
| Dividends and distributions payable | | 110 | | 110 |
| Accounts payable, accrued expenses and other liabilities | | 55,990 | | 72,041 |
| Rents received in advance and security deposits | | 22,795 | | 22,941 |
| Accrued interest payable | | 7,086 | | 7,131 |
| Total liabilities | | 1,906,479 | | 2,006,200 |
| | | | |
| Commitments and contingencies | | | | |
| | | | |
| Redeemable noncontrolling interests | | 520,208 | | 515,231 |
| | | | |
| Equity: | | | | |
| Veris Residential, Inc. stockholders’ equity: | | | | |
Common stock, $0.01 par value, 190,000,000 shares authorized, 91,620,404 and 91,141,649 shares outstanding | | 915 | | 911 |
| Additional paid-in capital | | 2,533,854 | | 2,532,182 |
| Dividends in excess of net earnings | | (1,321,358) | | | (1,301,385) | |
| Accumulated other comprehensive income | | 3,119 | | 3,977 |
| Total Veris Residential, Inc. stockholders’ equity | | 1,216,530 | | 1,235,685 |
| | | | |
| Noncontrolling interests in subsidiaries: | | | | |
| Operating Partnership | | 121,045 | | 126,109 |
| Consolidated joint ventures | | 36,394 | | 37,543 |
| Total noncontrolling interests in subsidiaries | | 157,439 | | 163,652 |
| | | | |
| Total equity | | 1,373,969 | | 1,399,337 |
| | | | |
| Total liabilities and equity | | $ | 3,800,656 | | $ | 3,920,768 |
The accompanying notes are an integral part of these consolidated financial statements.
VERIS RESIDENTIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited) | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | |
| REVENUES | | 2023 | | 2022 | | | | |
| Revenue from leases | | $ | 59,678 | | | $ | 40,508 | | | | | |
| Real estate services | | 911 | | | 910 | | | | |
| Parking income | | 4,459 | | | 3,682 | | | | |
| | | | | | | | |
| Other income | | 1,877 | | | 1,069 | | | | |
| Total revenues | | 66,925 | | | 46,169 | | | | |
| | | | | | | | |
| EXPENSES | | | | | | | | |
| Real estate taxes | | 11,142 | | | 7,837 | | | | |
| Utilities | | 2,689 | | | 2,409 | | | | |
| Operating services | | 11,970 | | | 8,480 | | | | |
| Real estate services expenses | | 1,943 | | | 2,363 | | | | |
| General and administrative | | 10,286 | | | 19,451 | | | | |
| Transaction related costs | | 1,027 | | | — | | | | |
| Depreciation and amortization | | 23,876 | | | 18,838 | | | | |
| | | | | | | | |
| Land and other impairments, net | | 3,396 | | | 2,932 | | | | |
| Total expenses | | 66,329 | | | 62,310 | | | | |
| | | | | | | | |
| OTHER (EXPENSE) INCOME | | | | | | | | |
| Interest expense | | (22,014) | | | (11,606) | | | | |
| Interest and other investment income | | 116 | | | 158 | | | | |
| Equity in earnings (loss) of unconsolidated joint ventures | | (68) | | | (487) | | | | |
| | | | | | | | |
| (Loss) gain on disposition of developable land | | (22) | | | 2,623 | | | | |
| | | | | | | | |
| Other income, net | | 1,998 | | | — | | | | | |
| Total other (expense) income, net | | (19,990) | | | (9,312) | | | | |
| Loss from continuing operations | | (19,394) | | | (25,453) | | | | | |
| Discontinued operations: | | | | | | | | |
| Income from discontinued operations | | 2,384 | | | 19,090 | | | | |
| Realized gains (losses) and unrealized gains (losses) on disposition of rental property and impairments, net | | 780 | | | 1,836 | | | | |
| Total discontinued operations, net | | 3,164 | | | 20,926 | | | | |
| Net loss | | (16,230) | | | (4,527) | | | | | |
| Noncontrolling interests in consolidated joint ventures | | 587 | | | 974 | | | | |
| Noncontrolling interests in Operating Partnership of income from continuing operations | | 2,329 | | | 2,779 | | | | |
| Noncontrolling interests in Operating Partnership in discontinued operations | | (293) | | | (1,881) | | | | |
| Redeemable noncontrolling interests | | (6,366) | | | (6,437) | | | | |
| Net loss available to common shareholders | | $ | (19,973) | | | $ | (9,092) | | | | | |
| | | | | | | | |
| Basic earnings per common share: | | | | | | | | |
| Loss from continuing operations | | $ | (0.30) | | | $ | (0.34) | | | | | |
| Discontinued operations | | 0.03 | | | 0.21 | | | | | |
| Net loss available to common shareholders | | $ | (0.27) | | | $ | (0.13) | | | | | |
| | | | | | | | |
| Diluted earnings per common share: | | | | | | | | |
| Loss from continuing operations | | $ | (0.30) | | | $ | (0.34) | | | | | |
| Discontinued operations | | 0.03 | | | 0.21 | | | | | |
| Net loss available to common shareholders | | $ | (0.27) | | | $ | (0.13) | | | | | |
| | | | | | | | |
| Basic weighted average shares outstanding | | 91,226 | | | 90,951 | | | | | |
| | | | | | | | |
| Diluted weighted average shares outstanding | | 100,526 | | | 99,934 | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
VERIS RESIDENTIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) (unaudited)
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | |
| | 2023 | | 2022 | | | | |
| | | | | | | | |
| Net loss | | $ | (16,230) | | | $ | (4,527) | | | | |
| Other comprehensive income (loss): | | | | | | | | |
| Net unrealized gain (loss) on derivative instruments for interest rate swaps | | (945) | | 2,182 | | | | |
| Comprehensive income (loss) | | $ | (17,175) | | | $ | (2,345) | | | | |
| Comprehensive (income) loss attributable to noncontrolling interests in consolidated joint ventures | | 587 | | 974 | | | | |
| Comprehensive (income) loss attributable to redeemable noncontrolling interests | | (6,366) | | (6,437) | | | | | |
| Comprehensive (income) loss attributable to noncontrolling interests in Operating Partnership | | 2,123 | | 702 | | | | |
| Comprehensive income (loss) attributable to common shareholders | | $ | (20,831) | | | $ | (7,106) | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
VERIS RESIDENTIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (in thousands) (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | Additional
Paid-In
Capital | | Dividends in
Excess of
Net Earnings | | Accumulated
Other
Comprehensive
Income (Loss) | | Noncontrolling
Interests
in Subsidiaries | | Total Equity |
For the Three Months Ended March 31, 2023 | | Shares | | Par Value | | | | | |
| Balance at January 1, 2023 | | 91,142 | | | 911 | | | $ | 2,532,182 | | | $ | (1,301,385) | | | $ | 3,977 | | | $ | 163,652 | | | $ | 1,399,337 | |
| Net income (loss) | | — | | | — | | | — | | | (19,973) | | | — | | | 3,743 | | | (16,230) | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Redeemable noncontrolling interests | | — | | | — | | | (4,516) | | | — | | | — | | | (6,827) | | | (11,343) | |
| Change in noncontrolling interests in consolidated joint ventures | | — | | | — | | | — | | | — | | | — | | | (562) | | | (562) | |
| Redemption of common units for common stock | | 379 | | | 4 | | | 4,855 | | | — | | | — | | | (4,859) | | | — | |
| Redemption of common units | | — | | | — | | | — | | | — | | | — | | | (16) | | | (16) | |
| Shares issued under Dividend Reinvestment and Stock Purchase Plan | | — | | | — | | | 1 | | | — | | | — | | | — | | | 1 | |
| Directors' deferred compensation plan | | — | | | — | | | 110 | | | — | | | — | | | — | | | 110 | |
| Stock compensation | | 115 | | | — | | | 3,471 | | | — | | | — | | | 393 | | | 3,864 | |
| Cancellation of restricted shares | | (16) | | | — | | | (247) | | | — | | | — | | | — | | | (247) | |
| Other comprehensive loss | | — | | | — | | | — | | | — | | | (858) | | | (87) | | | (945) | |
| Rebalancing of ownership percentage between parent and subsidiaries | | — | | | — | | | (2,002) | | | — | | | — | | | 2,002 | | | — | |
Balance at March 31, 2023 | | 91,620 | | | 915 | | | $ | 2,533,854 | | | $ | (1,321,358) | | | $ | 3,119 | | | $ | 157,439 | | | $ | 1,373,969 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional
Paid-In
Capital | | Dividends in
Excess of
Net Earnings | | Accumulated
Other
Comprehensive
Income (Loss) | | Noncontrolling
Interests
in Subsidiaries | | Total Equity |
For the Three Months Ended March 31, 2022 | | Shares | | Par Value | | | | | |
| Balance at January 1, 2022 | | 90,948 | | | 909 | | | $ | 2,530,383 | | | $ | (1,249,319) | | | $ | 9 | | | $ | 167,436 | | | $ | 1,449,418 | |
| Net income (loss) | | — | | | — | | | — | | | (9,092) | | | — | | | 4,565 | | | (4,527) | |
| | | | | | | | | | | | | | |
| Common unit distributions | | — | | | — | | | — | | | — | | | — | | | 218 | | | 218 | |
| Redeemable noncontrolling interests | | — | | | — | | | (2,942) | | | — | | | — | | | (6,728) | | | (9,670) | |
| Change in noncontrolling interests in consolidated joint ventures | | — | | | — | | | — | | | — | | | — | | | 11 | | | 11 | |
| | | | | | | | | | | | | | |
| Redemption of common units | | — | | | — | | | — | | | — | | | — | | | (1,442) | | | (1,442) | |
| Shares issued under Dividend Reinvestment and Stock Purchase Plan | | 1 | | | — | | | 11 | | | — | | | — | | | — | | | 11 | |
| Directors' deferred compensation plan | | — | | | — | | | 110 | | | — | | | — | | | — | | | 110 | |
| Stock compensation | | 7 | | | — | | | 1,957 | | | — | | | — | | | 2,533 | | | 4,490 | |
| | | | | | | | | | | | | | |
| Other comprehensive income | | — | | | — | | | — | | | — | | | 1,986 | | | 196 | | | 2,182 | |
| Rebalancing of ownership percentage between parent and subsidiaries | | — | | | — | | | 1,669 | | | — | | | — | | | (1,669) | | | — | |
Balance at March 31, 2022 | | 90,956 | | | 909 | | | $ | 2,531,188 | | | $ | (1,258,411) | | | $ | 1,995 | | | $ | 165,120 | | | $ | 1,440,801 | |
The accompanying notes are an integral part of these consolidated financial statements.
VERIS RESIDENTIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) | | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| CASH FLOWS FROM OPERATING ACTIVITIES | | 2023 | | 2022 |
| Net loss | | $ | (16,230) | | | $ | (4,527) | |
| Net income from discontinued operations | | (3,164) | | | (20,926) | |
| Net loss from continuing operations | | (19,394) | | | (25,453) | |
| Adjustments to reconcile net income (loss) to net cash provided by | | | | |
| Operating activities: | | | | |
| Depreciation and amortization, including related intangible assets | | 23,853 | | | 18,849 | |
| Amortization of deferred compensation stock units | | 110 | | | 110 | |
| Amortization of stock compensation | | 3,864 | | | 4,490 | |
| Amortization of deferred financing costs | | 1,187 | | | 1,177 | |
| | | | |
| Equity in (earnings) loss of unconsolidated joint ventures | | 68 | | | 487 | |
| Distributions of cumulative earnings from unconsolidated joint ventures | | — | | | 13 | |
| | | | |
| | | | |
| Loss (gain) on disposition of developable land | | 22 | | | (2,623) | |
| | | | |
| | | | |
| Land and other impairments, net | | 3,396 | | | 2,932 | |
| | | | |
| Gain on insurance proceeds | | (1,998) | | | — | |
| | | | |
| Changes in operating assets and liabilities: | | | | |
| (Increase) decrease in unbilled rents receivable, net | | (142) | | | 2,030 | |
| Decrease (increase) in deferred charges and other assets | | 2,717 | | | (3,390) | |
| Decrease in accounts receivable, net | | 291 | | | 84 | |
| (Decrease) increase in accounts payable, accrued expenses and other liabilities | | (6,256) | | | 2,166 | |
| Increase in rents received in advance and security deposits | | 322 | | | 834 | |
| Increase (decrease) in accrued interest payable | | 281 | | | (101) | |
| Net cash flows provided by operating activities - continuing operations | | 8,321 | | | 1,605 | |
| Net cash flows provided by operating activities - discontinued operations | | 3,776 | | | 29,896 | |
| | | | |
| Net cash provided by operating activities | | $ | 12,097 | | | $ | 31,501 | |
| | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | |
| Rental property acquisitions and related intangibles | | $ | — | | | $ | (5,000) | |
| Rental property additions, improvements and other costs | | (2,786) | | | (5,395) | |
| Development of rental property and other related costs | | (2,928) | | | (21,152) | |
| Proceeds from the sales of rental property | | 6,364 | | | 28,596 | |
| | | | |
| Repayment of notes receivable | | 769 | | | 709 | |
| Proceeds from insurance settlements | | 2,939 | | | — | |
| Investment in unconsolidated joint ventures | | (43) | | | — | |
| Distributions in excess of cumulative earnings from unconsolidated joint ventures | | 1,915 | | | 2,227 | |
| Net cash provided by (used in) investing activities - continuing operations | | 6,230 | | | (15) | |
| Net cash provided by investing activities - discontinued operations | | 83,006 | | | 193,070 | |
| | | | |
| Net cash provided by investing activities | | $ | 89,236 | | | $ | 193,055 | |
| | | | |
| CASH FLOW FROM FINANCING ACTIVITIES | | | | |
| Borrowings from revolving credit facility | | $ | 16,000 | | | $ | 18,000 | |
| Repayment of revolving credit facility | | (16,000) | | | (88,000) | |
| | | | |
| | | | |
| | | | |
| Proceeds from mortgages and loans payable | | — | | | 16,479 | |
| Repayment of mortgages, loans payable and other obligations | | (84,128) | | | (150,122) | |
| Redemption of redeemable noncontrolling interests, net | | — | | | (12,000) | |
| Payment of early debt extinguishment costs | | — | | | (5,140) | |
| Common unit redemptions | | — | | | (1,442) | |
| Payment of financing costs | | (1,359) | | | — | |
| Contribution from noncontrolling interests | | — | | | 11 | |
| Distributions to redeemable noncontrolling interests | | (6,366) | | | (6,471) | |
| Payment of common dividends and distributions | | — | | | (35) | |
| | | | |
| Net cash used in financing activities | | $ | (91,853) | | | $ | (228,720) | |
| | | | |
| Net increase (decrease) in cash and cash equivalents | | $ | 9,480 | | | $ | (4,164) | |
| Cash, cash equivalents and restricted cash, beginning of period (1) | | 47,649 | | | 51,455 | |
| | | | |
| Cash, cash equivalents and restricted cash, end of period (2) | | $ | 57,129 | | | $ | 47,291 | |
(1)Includes Restricted Cash of $20,867 and $19,701 as of December 31, 2022 and 2021, respectively.
(2)Includes Restricted Cash of $19,642 and $21,153 as of March 31, 2023 and 2022, respectively.
The accompanying notes are an integral part of these consolidated financial statements.
VERIS RESIDENTIAL, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (in thousands, except per unit amounts) (unaudited)
| | | | | | | | | | | | | | |
| ASSETS | | March 31,
2023 | | December 31,
2022 |
| Rental property | | | | |
| Land and leasehold interests | | $ | 482,254 | | $ | 492,204 |
| Buildings and improvements | | 2,906,269 | | 3,332,315 |
| Tenant improvements | | 42,089 | | 122,509 |
| Furniture, fixtures and equipment | | 99,342 | | 99,094 |
| | 3,529,954 | | 4,046,122 |
| Less – accumulated depreciation and amortization | | (442,047) | | | (631,910) | |
| | 3,087,907 | | 3,414,212 |
| Real estate held for sale, net | | 397,499 | | 193,933 |
| Net investment in rental property | | 3,485,406 | | 3,608,145 |
| Cash and cash equivalents | | 37,487 | | 26,782 |
| Restricted cash | | 19,642 | | 20,867 |
| Investments in unconsolidated joint ventures | | 124,218 | | 126,158 |
| Unbilled rents receivable, net | | 40,960 | | 39,734 |
| Deferred charges and other assets, net | | 88,392 | | 96,162 |
| Accounts receivable | | 4,551 | | 2,920 |
| | | | |
| Total assets | | $ | 3,800,656 | | $ | 3,920,768 |
| LIABILITIES AND EQUITY | | | | |
| | | | |
| Mortgages, loans payable and other obligations, net | | $ | 1,820,498 | | $ | 1,903,977 |
| Distributions payable | | 110 | | 110 |
| Accounts payable, accrued expenses and other liabilities | | 55,990 | | 72,041 |
| Rents received in advance and security deposits | | 22,795 | | 22,941 |
| Accrued interest payable | | 7,086 | | 7,131 |
| Total liabilities | | 1,906,479 | | 2,006,200 |
| | | | |
| Commitments and contingencies | | | | |
| | | | |
| Redeemable noncontrolling interests | | 520,208 | | 515,231 |
| | | | |
| Partners’ Capital: | | | | |
General Partner, 91,620,404 and 91,141,649 common units outstanding | | 1,147,640 | | 1,163,935 |
Limited partners, 9,116,254 and 9,301,521 common units/LTIPs outstanding | | 186,816 | | 193,882 |
| Accumulated other comprehensive income | | 3,119 | | 3,977 |
| Total Veris Residential, L.P. partners’ capital | | 1,337,575 | | 1,361,794 |
| | | | |
| Noncontrolling interests in consolidated joint ventures | | 36,394 | | 37,543 |
| | | | |
| Total equity | | 1,373,969 | | 1,399,337 |
| | | | |
| Total liabilities and equity | | $ | 3,800,656 | | $ | 3,920,768 |
The accompanying notes are an integral part of these consolidated financial statements.
VERIS RESIDENTIAL, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited)
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | |
| REVENUES | | 2023 | | 2022 | | | | |
| Revenue from leases | | $ | 59,678 | | | $ | 40,508 | | | | | |
| Real estate services | | 911 | | | 910 | | | | | |
| Parking income | | 4,459 | | | 3,682 | | | | | |
| | | | | | | | |
| Other income | | 1,877 | | | 1,069 | | | | | |
| Total revenues | | 66,925 | | | 46,169 | | | | | |
| EXPENSES | | | | | | | | |
| Real estate taxes | | 11,142 | | | 7,837 | | | | | |
| Utilities | | 2,689 | | | 2,409 | | | | | |
| Operating services | | 11,970 | | | 8,480 | | | | | |
| Real estate services expenses | | 1,943 | | | 2,363 | | | | | |
| General and administrative | | 10,286 | | | 19,451 | | | | | |
| Transaction related costs | | 1,027 | | | — | | | | | |
| Depreciation and amortization | | 23,876 | | | 18,838 | | | | | |
| | | | | | | | |
| Land and other impairments, net | | 3,396 | | | 2,932 | | | | | |
| Total expenses | | 66,329 | | | 62,310 | | | | | |
| OTHER (EXPENSE) INCOME | | | | | | | | |
| Interest expense | | (22,014) | | | (11,606) | | | | | |
| Interest and other investment income | | 116 | | | 158 | | | | | |
| Equity in earnings (loss) of unconsolidated joint ventures | | (68) | | | (487) | | | | | |
| | | | | | | | |
| (Loss) gain on disposition of developable land | | (22) | | | 2,623 | | | | | |
| | | | | | | | |
| | | | | | | | |
| Other income, net | | 1,998 | | | — | | | | | |
| Total other (expense) income, net | | (19,990) | | | (9,312) | | | | | |
| Loss from continuing operations | | (19,394) | | | (25,453) | | | | | |
| Discontinued operations: | | | | | | | | |
| Income from discontinued operations | | 2,384 | | | 19,090 | | | | | |
| Realized gains (losses) and unrealized gains (losses) on disposition of rental property and impairments, net | | 780 | | | 1,836 | | | | | |
| Total discontinued operations, net | | 3,164 | | | 20,926 | | | | | |
| Net loss | | (16,230) | | | (4,527) | | | | | |
| Noncontrolling interests in consolidated joint ventures | | 587 | | | 974 | | | | | |
| Redeemable noncontrolling interests | | (6,366) | | | (6,437) | | | | | |
| Net loss available to common unitholders | | $ | (22,009) | | | $ | (9,990) | | | | | |
| Basic earnings per common unit: | | | | | | | | |
| Loss from continuing operations | | $ | (0.30) | | | $ | (0.34) | | | | | |
| Discontinued operations | | 0.03 | | | 0.21 | | | | | |
| Net loss available to common unitholders | | $ | (0.27) | | | $ | (0.13) | | | | | |
| Diluted earnings per common unit: | | | | | | | | |
| Loss from continuing operations | | $ | (0.30) | | | $ | (0.34) | | | | | |
| Discontinued operations | | 0.03 | | | 0.21 | | | | | |
| Net loss available to common unitholders | | $ | (0.27) | | | $ | (0.13) | | | | | |
| | | | | | | | |
| Basic weighted average units outstanding | | 100,526 | | | 99,934 | | | | | |
| | | | | | | | |
| Diluted weighted average units outstanding | | 100,526 | | | 99,934 | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
VERIS RESIDENTIAL, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) (unaudited)
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | |
| | 2023 | | 2022 | | | | |
| | | | | | | | |
| Net loss | | $ | (16,230) | | | $ | (4,527) | | | | |
| Other comprehensive income (loss): | | | | | | | | |
| Net unrealized gain (loss) on derivative instruments for interest rate swaps | | (945) | | 2,182 | | | | |
| Comprehensive income (loss) | | $ | (17,175) | | | $ | (2,345) | | | | |
| Comprehensive (income) loss attributable to noncontrolling interests in consolidated joint ventures | | 587 | | 974 | | | | |
| Comprehensive (income) loss attributable to redeemable noncontrolling interests | | (6,366) | | (6,437) | | | | | |
| Comprehensive income (loss) attributable to common unitholders | | $ | (22,954) | | | $ | (7,808) | | | | |
The accompanying notes are an integral part of these consolidated financial statements
VERIS RESIDENTIAL, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (in thousands) (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended March 31, 2023 | | General Partner
Common Units | | Limited Partner
Common Units/
Vested LTIP Units | | Common
Unitholders | | Limited Partner
Common
Unitholders | | Accumulated
Other
Comprehensive
Income (Loss) | | Noncontrolling
Interest
in Consolidated
Joint Ventures | | Total Equity |
| Balance at January 1, 2023 | | 91,142 | | | 9,301 | | | $ | 1,163,935 | | | $ | 193,882 | | | $ | 3,977 | | | $ | 37,543 | | | $ | 1,399,337 | |
| Net income (loss) | | — | | | — | | | (19,973) | | | (2,036) | | | — | | | 5,779 | | | (16,230) | |
| | | | | | | | | | | | | | |
| Redeemable noncontrolling interests | | — | | | — | | | (4,516) | | | (461) | | | — | | | (6,366) | | | (11,343) | |
| Change in noncontrolling interests in consolidated joint ventures | | — | | | — | | | — | | | — | | | — | | | (562) | | | (562) | |
| Vested LTIP units | | — | | | 195 | | | — | | | — | | | — | | | — | | | — | |
| Redemption of limited partners common units for shares of general partner common units | | 379 | | | (379) | | | 4,859 | | | (4,859) | | | — | | | — | | | — | |
| Redemption of limited partner common units | | — | | | (1) | | | — | | | (16) | | | — | | | — | | | (16) | |
| Shares issued under Dividend Reinvestment and Stock Purchase Plan | | — | | | — | | | 1 | | | — | | | — | | | — | | | 1 | |
| Directors' deferred compensation plan | | — | | | — | | | 110 | | | — | | | — | | | — | | | 110 | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | (87) | | | (858) | | | — | | | (945) | |
| Stock compensation | | 115 | | | — | | | 3,471 | | | 393 | | | — | | | — | | | 3,864 | |
| Cancellation of restricted shares | | (16) | | | — | | | (247) | | | — | | | — | | | — | | | (247) | |
| Balance at March 31, 2023 | | 91,620 | | | 9,116 | | | $ | 1,147,640 | | | $ | 186,816 | | | $ | 3,119 | | | $ | 36,394 | | | $ | 1,373,969 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended March 31, 2022 | | General Partner
Common Units | | Limited Partner
Common Units/
Vested LTIP Units | | General Partner
Common
Unitholders | | Limited Partner
Common
Unitholders | | Accumulated
Other
Comprehensive
Income (Loss) | | Noncontrolling
Interest
in Consolidated
Joint Ventures | | Total Equity |
| Balance at January 1, 2022 | | 90,948 | | | 9,013 | | | $ | 1,211,790 | | | $ | 197,236 | | | $ | 9 | | | $ | 40,383 | | | $ | 1,449,418 | |
| Net income (loss) | | — | | | — | | | (9,092) | | | (898) | | | — | | | 5,463 | | | (4,527) | |
| Unit distributions | | — | | | — | | | — | | | 218 | | | — | | | — | | | 218 | |
| Redeemable noncontrolling interests | | — | | | — | | | (2,942) | | | (291) | | | — | | | (6,437) | | | (9,670) | |
| Change in noncontrolling interests in consolidated joint ventures | | — | | | — | | | — | | | — | | | — | | | 11 | | | 11 | |
| | | | | | | | | | | | | | |
| Vested LTIP units | | — | | | 35 | | | — | | | — | | | — | | | — | | | — | |
| Redemption of limited partners common units | | — | | | (86) | | | — | | | (1,442) | | | — | | | — | | | (1,442) | |
| Shares issued under Dividend Reinvestment and Stock Purchase Plan | | 1 | | | — | | | 11 | | | — | | | — | | | — | | | 11 | |
| Directors' deferred compensation plan | | — | | | — | | | 110 | | | — | | | — | | | — | | | 110 | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | 196 | | | 1,986 | | | — | | | 2,182 | |
| Stock compensation | | 7 | | | — | | | 1,957 | | | 2,533 | | | — | | | — | | | 4,490 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Balance at March 31, 2022 | | 90,956 | | | 8,962 | | | $ | 1,201,834 | | | $ | 197,552 | | | $ | 1,995 | | | $ | 39,420 | | | $ | 1,440,801 | |
The accompanying notes are an integral part of these consolidated financial statements.
VERIS RESIDENTIAL, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| CASH FLOWS FROM OPERATING ACTIVITIES | | 2023 | | 2022 |
| Net loss | | $ | (16,230) | | | $ | (4,527) | |
| Net income from discontinued operations | | (3,164) | | | (20,926) | |
| Net loss from continuing operations | | (19,394) | | | (25,453) | |
| Adjustments to reconcile net income (loss) to net cash provided by | | | | |
| Operating activities: | | | | |
| Depreciation and amortization, including related intangible assets | | 23,853 | | | 18,849 | |
| Amortization of deferred compensation stock units | | 110 | | | 110 | |
| Amortization of stock compensation | | 3,864 | | | 4,490 | |
| Amortization of deferred financing costs | | 1,187 | | | 1,177 | |
| | | | |
| Equity in (earnings) loss of unconsolidated joint ventures | | 68 | | | 487 | |
| Distributions of cumulative earnings from unconsolidated joint ventures | | — | | | 13 | |
| | | | |
| | | | |
| Loss (gain) on disposition of developable land | | 22 | | | (2,623) | |
| | | | |
| | | | |
| Land and other impairments, net | | 3,396 | | | 2,932 | |
| | | | |
| | | | |
| Gain on insurance proceeds | | (1,998) | | | — | |
| Changes in operating assets and liabilities: | | | | |
| (Increase) decrease in unbilled rents receivable, net | | (142) | | | 2,030 | |
| Decrease (increase) in deferred charges and other assets | | 2,717 | | | (3,390) | |
| Decrease in accounts receivable, net | | 291 | | | 84 | |
| (Decrease) increase in accounts payable, accrued expenses and other liabilities | | (6,256) | | | 2,166 | |
| Increase in rents received in advance and security deposits | | 322 | | | 834 | |
| Increase (decrease) in accrued interest payable | | 281 | | | (101) | |
| Net cash flows provided by operating activities - continuing operations | | 8,321 | | | 1,605 | |
| Net cash flows provided by operating activities - discontinued operations | | 3,776 | | | 29,896 | |
| | | | |
| Net cash provided by operating activities | | $ | 12,097 | | | $ | 31,501 | |
| | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | |
| Rental property acquisitions and related intangibles | | $ | — | | | $ | (5,000) | |
| Rental property additions, improvements and other costs | | (2,786) | | | (5,395) | |
| Development of rental property and other related costs | | (2,928) | | | (21,152) | |
| Proceeds from the sales of rental property | | 6,364 | | | 28,596 | |
| | | | |
| Repayment of notes receivable | | 769 | | | 709 | |
| Proceeds from insurance settlements | | 2,939 | | | — | |
| Investment in unconsolidated joint ventures | | (43) | | | — | |
| Distributions in excess of cumulative earnings from unconsolidated joint ventures | | 1,915 | | | 2,227 | |
| Net cash provided by (used in) investing activities - continuing operations | | 6,230 | | | (15) | |
| Net cash provided by investing activities - discontinued operations | | 83,006 | | | 193,070 | |
| | | | |
| Net cash provided by investing activities | | $ | 89,236 | | | $ | 193,055 | |
| | | | |
| CASH FLOW FROM FINANCING ACTIVITIES | | | | |
| Borrowings from revolving credit facility | | $ | 16,000 | | | $ | 18,000 | |
| Repayment of revolving credit facility | | (16,000) | | | (88,000) | |
| | | | |
| | | | |
| | | | |
| Proceeds from mortgages and loans payable | | — | | | 16,479 | |
| Repayment of mortgages, loans payable and other obligations | | (84,128) | | | (150,122) | |
| Redemption of redeemable noncontrolling interests, net | | — | | | (12,000) | |
| Payment of early debt extinguishment costs | | — | | | (5,140) | |
| Common unit redemptions | | — | | | (1,442) | |
| Payment of financing costs | | (1,359) | | | — | |
| Contribution from noncontrolling interests | | — | | | 11 | |
| Distributions to redeemable noncontrolling interests | | (6,366) | | | (6,471) | |
| Payment of common dividends and distributions | | — | | | (35) | |
| | | | |
| Net cash used in financing activities | | $ | (91,853) | | | $ | (228,720) | |
| | | | |
| Net increase (decrease) in cash and cash equivalents | | $ | 9,480 | | | $ | (4,164) | |
| Cash, cash equivalents and restricted cash, beginning of period (1) | | 47,649 | | | 51,455 | |
| | | | |
| Cash, cash equivalents and restricted cash, end of period (2) | | $ | 57,129 | | | $ | 47,291 | |
(1)Includes Restricted Cash of $20,867 and $19,701 as of December 31, 2022 and 2021, respectively.
(2)Includes Restricted Cash of $19,642 and $21,153 as of March 31, 2023 and 2022, respectively.
The accompanying notes are an integral part of these consolidated financial statements.
VERIS RESIDENTIAL, INC., VERIS RESIDENTIAL, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Veris Residential, Inc., a Maryland corporation, together with its subsidiaries (collectively, the “General Partner”) is a fully-integrated self-administered, self-managed real estate investment trust (“REIT”). The General Partner controls Veris Residential, L.P., a Delaware limited partnership, together with its subsidiaries (collectively, the “Operating Partnership”), as its sole general partner and owned a 91.0 and 90.7 percent common unit interest in the Operating Partnership as of March 31, 2023 and December 31, 2022, respectively.
The Company develops, owns and operates predominantly multifamily rental properties located primarily in the Northeast, as well as a portfolio of Class A office properties. The Company is in the process of transitioning to a pure-play multifamily REIT and is focused on conducting business in a socially, ethically, and environmentally responsible manner, while seeking to maximize value for all stakeholders. Veris Residential, Inc. was incorporated on May 24, 1994.
Unless stated otherwise or the context requires, the “Company” refers to the General Partner and its subsidiaries, including the Operating Partnership and its subsidiaries.
As of March 31, 2023, the Company owned or had interests in 24 multifamily rental properties as well as non-core assets comprised of five office properties and four parking/retail properties. The Properties are comprised of: (a) 25 wholly-owned or Company-controlled properties comprised of 17 multifamily properties and eight non-core assets, and (b) eight properties owned by unconsolidated joint ventures in which the Company has investment interests, including seven multifamily properties and a non-core asset.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include all accounts of the Company, its majority-owned and/or controlled subsidiaries, which consist principally of the Operating Partnership and variable interest entities for which the Company has determined itself to be the primary beneficiary, if any. See Note 2 to the 2022 10-K: Significant Accounting Policies – Investments in Unconsolidated Joint Ventures, for the Company’s treatment of unconsolidated joint venture interests. Intercompany accounts and transactions have been eliminated.
Accounting Standards Codification (“ASC”) 810, Consolidation, provides guidance on the identification of entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and the determination of which business enterprise, if any, should consolidate the VIEs. Generally, the consideration of whether an entity is a VIE applies when either: (1) the equity investors (if any) lack (i) the ability to make decisions about the entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; (2) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support; or (3) the equity investors have voting rights that are not proportionate to their economic interests and substantially all of the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest. The Company consolidates VIEs in which it is considered to be the primary beneficiary. The primary beneficiary is defined by the entity having both of the following characteristics: (1) the power to direct the activities that, when taken together, most significantly impact the variable interest entity’s performance: and (2) the obligation to absorb losses and right to receive the returns from the VIE that would be significant to the VIE.
Under ASC 810, the Operating Partnership is considered a variable interest entity of the parent company, Veris Residential, Inc. As the Operating Partnership is already consolidated in the balance sheets of Veris Residential, Inc., this has no impact on the consolidated financial statements of Veris Residential, Inc.
As of March 31, 2023 and December 31, 2022, the Company’s investments in consolidated real estate joint ventures, which are variable interest entities in which the Company is deemed to be the primary beneficiary, other than Veris Residential Partners, L.P. (See Note 14: Redeemable Noncontrolling Interests – Rockpoint Transaction), have total real estate assets of $457.0 million and $468.1 million, respectively, other assets of $6.0 million and $6.0 million, respectively, mortgages of $285.5 million and $285.5 million, respectively, and other liabilities of $16.2 million and $17.3 million, respectively.
The financial statements have been prepared in conformity with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are based on management’s historical experience that are believed to be reasonable at the time. However, because future events and their effects cannot be determined with certainty, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates. Certain reclassifications have been made to prior period amounts in order to conform with current period presentation, primarily related to classification of certain properties as discontinued operations.
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements should be read in conjunction with the Company’s audited Annual Report on Form 10-K for the year ended December 31, 2022, as certain disclosures in this Quarterly Report on Form 10-Q that would duplicate those included in the 10-K are not included in these financial statements.
Rental Property
Rental properties are reported at cost less accumulated depreciation and amortization. Costs directly related to the acquisition, development and construction of rental properties are capitalized. The Company adopted Financial Accounting Standards Board (“FASB”) guidance Accounting Standards Update (“ASU”) 2017-01 on January 1, 2017, which revises the definition of a business and is expected to result in more transactions to be accounted for as asset acquisitions and significantly limit transactions that would be accounted for as business combinations. Where an acquisition has been determined to be an asset acquisition, acquisition-related costs are capitalized. Capitalized development and construction costs include pre-construction costs essential to the development of the property, development and construction costs, interest, property taxes, insurance, salaries and other project costs incurred during the period of development. Capitalized development and construction salaries and related costs approximated $0.1 million and $0.4 million for the three months ended March 31, 2023 and 2022, respectively. Ordinary repairs and maintenance are expensed as incurred; major replacements and improvements, which enhance or extend the life of the asset, are capitalized and depreciated over their estimated useful lives. Fully-depreciated assets are removed from the accounts.
Included in net investment in rental property as of March 31, 2023 and December 31, 2022 is real estate and building and tenant improvements not in service, as follows (dollars in thousands):
| | | | | | | | | | | | | | |
| | March 31,
2023 | | December 31,
2022 |
| Land held for development (including pre-development costs, if any) (a)(b) | | $ | 254,460 | | | $ | 264,934 | |
| Development and construction in progress, including land (c)(d) | | 203,095 | | | 205,173 | |
| Total | | $ | 457,555 | | | $ | 470,107 | |
(a)Includes predevelopment and infrastructure costs included in buildings and improvements of $93.9 million and $97.7 million as of March 31, 2023 and December 31, 2022, respectively.
(b)Includes $64.6 million of land and $7.5 million of building and improvements classified as to assets held for sale at March 31, 2023.
(c)Includes land of $13.6 million as of March 31, 2023 and December 31, 2022.
(d)Includes $2.2 million of land and $128.1 million of building and improvements classified as to assets held for sale at March 31, 2023.
The Company considers a construction project as substantially completed and held available for occupancy upon the substantial completion of improvements, but no later than one year from cessation of major construction activity (as distinguished from activities such as routine maintenance and cleanup). If portions of a rental project are substantially completed and occupied by tenants or residents, or held available for occupancy, and other portions have not yet reached that stage, the substantially completed portions are accounted for as a separate project. The Company allocates costs incurred between the portions under construction and the portions substantially completed and held available for occupancy, primarily based on a percentage of the relative commercial square footage or multifamily units of each portion, and capitalizes only those costs associated with the portion under construction.
Dividends and Distributions Payable
The Company has suspended its common dividends since September 2020, which was initially a strategic decision by the Board of Directors to allow for greater financial flexibility during the COVID-19 pandemic and to retain incremental capital to support the Company's value-enhancing investments across the portfolio and was based upon its estimates of taxable income. Based upon its current estimates of taxable income and its expectation of disposition activity, the Board has made the strategic decision to continue to suspend its dividend to support the transformation of the Company to a pure-play multifamily REIT and will re-evaluate this decision when such transition is substantially complete.
The declaration and payment of dividends and distributions will continue to be determined by the Board of Directors of the General Partner in light of conditions then existing, including the Company’s earnings, cash flows, financial condition, capital requirements, debt maturities, the availability of debt and equity capital, applicable REIT and legal restrictions and the general overall economic conditions and other factors.
The dividends and distributions payable at March 31, 2023 and December 31, 2022 represent amounts payable on unvested LTIP units.
3. RECENT TRANSACTIONS
Real Estate Held for Sale/Discontinued Operations/Dispositions
The Company has discontinued operations related to its former New Jersey office and hotel portfolio (collectively, the “Office Portfolio”) which represented a strategic shift in the Company’s operations beginning in 2019. In the first quarter of 2023, the Company identified six office properties (including a property not in service) and two hotels as discontinued operations. See Note 7: Discontinued Operations.
As of March 31, 2023, the Company identified as held for sale several office properties totaling approximately 2.2 million square feet and several developable land parcels, which are located in Jersey City, Holmdel and Parsippany, New Jersey. As of March 31, 2023, a land parcel that was previously identified as held for sale was reclassified as held and used. As a result of recent sales contracts in place, the Company determined that the carrying value of three land parcels held for sale were not expected to be recovered from estimated net sales proceeds, and accordingly, recorded land and other impairments of $3.4 million during the three months ended March 31, 2023.
The total estimated sales proceeds of real estate held for sale, net of expected selling costs, are expected to be approximately $456.5 million.
In April 2023, the Company completed the sale of three office properties totaling approximately 1.9 million square feet for a gross sales price of $420 million.
The following table summarizes the real estate held for sale, net, and other assets and liabilities (dollars in thousands) as of March 31, 2023:
| | | | | | | | | | | | | | | | | |
| | Office
Portfolio | | Other Assets
Held for Sale | Total |
| Land | | $ | 16,232 | | $ | 59,463 | $ | 75,695 |
| Building & Other | | 553,740 | | 8,204 | 561,944 |
| Less: Accumulated depreciation | | (235,700) | | | — | | (235,700) | |
| Less: Cumulative unrealized losses on property held for sale | | (4,440) | | | — | | (4,440) | |
| Real estate held for sale, net | | $ | 329,832 | | $ | 67,667 | $ | 397,499 |
| | | | | | | | | | | | | | | | | |
| Other assets and liabilities | | Office
Portfolio | | Other Assets
Held for Sale | Total |
| Unbilled rents receivable, net (a) | | $ | 32,491 | | $ | — | | $ | 32,491 |
| Deferred charges, net (a) | | 27,900 | | — | | 27,900 |
| | | | | |
| | | | | |
| Accounts payable, accrued exp & other liability | | (7,786) | | (41) | (7,827) |
| Unearned rents/deferred rental income (a) | | (6,624) | | | — | | (6,624) | |
(a)Expected to be removed with the completion of the sales.
The Company disposed of the following rental property during the three months ended March 31, 2023 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Disposition
Date | | Property | | Location | | # of
Bldgs. | | Rentable
Square
Feet | | Property
Type | | Net
Sales
Proceeds | | Net
Carrying
Value | | | Discontinued
Operations
Realized
Gains
(Losses)/
Unrealized
Losses, net |
| 02/10/23 | | XS Hotels | | Weehawken, New Jersey | | 2 | | — | | | Hotel | | $ | 93,358 | | (a) | $ | 92,578 | | | | $ | 780 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Totals | | | | | | 2 | | — | | | | | $ | 93,358 | | | $ | 92,578 | | | | $ | 780 | |
(a)Included the proceeds of $84 million used to repay the mortgage loan encumbering the property at closing.
The Company disposed of the following developable land holding during the three months ended March 31, 2023 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Disposition
Date | | Property | | Location | | Net
Sales
Proceeds | | Net
Carrying
Value | | Realized
Gains
(Losses)/
Unrealized
Losses, net |
| 03/17/23 | | Columbia-Honeywell | | Morris Township, New Jersey | | $ | 8,214 | | (a) | $ | 8,236 | | | $ | (22) | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Totals | | | | | | $ | 8,214 | | | $ | 8,236 | | | $ | (22) | |
(a) Included deposits totaling $1.1 million received by the Company in December 2022 and January 2023.
4. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
As of March 31, 2023, the Company had an aggregate investment of approximately $124.2 million in its equity method joint ventures. The Company formed these ventures with unaffiliated third parties, or acquired interests in them, to develop or manage properties, or in anticipation of possible development of rental properties. As of March 31, 2023, the unconsolidated joint ventures owned: seven multifamily properties totaling 2,146 apartment units, a retail property aggregating approximately 51,000 square feet and interests and/or rights to developable land parcels able to accommodate up to 829 apartment units. The Company’s unconsolidated interests range from 20 percent to 85 percent subject to specified priority allocations in certain of the joint ventures.
The amounts reflected in the following tables (except for the Company’s share of equity in earnings) are based on the historical financial information of the individual joint ventures. The Company does not record losses of the joint ventures in excess of its investment balances unless the Company is liable for the obligations of the joint venture or is otherwise committed to provide financial support to the joint venture. The outside basis portion of the Company’s investments in joint ventures is amortized over the anticipated useful lives of the underlying ventures’ tangible and intangible assets acquired and liabilities assumed.
The debt of the Company’s unconsolidated joint ventures generally is non-recourse to the Company, except for customary exceptions pertaining to such matters as intentional misuse of funds, environmental conditions, and material misrepresentations. The Company has agreed to guarantee repayment of a portion of the debt of its unconsolidated joint
ventures. As of March 31, 2023, the outstanding balance of such debt, subject to guarantees, totaled $18.2 million of which $2.0 million was guaranteed by the Company.
The Company performed management, leasing, development and other services for the properties owned by the unconsolidated joint ventures, related parties to the Company, and recognized $0.9 million and $0.9 million for such services in the three months ended March 31, 2023 and 2022, respectively. The Company had $0.3 million and $0.2 million in accounts receivable due from its unconsolidated joint ventures as of March 31, 2023 and December 31, 2022, respectively.
As of March 31, 2023, the Company does not have any investments in unconsolidated joint ventures that are considered VIEs.
The following is a summary of the Company's unconsolidated joint ventures as of March 31, 2023 and December 31, 2022 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Property Debt | | |
| Entity / Property Name | | Number of
Apartment Units
or Rentable SF | | Company's
Effective
Ownership % (a) | | Carrying Value | | As of March 31, 2023 | | Interest
Rate |
| | | | | | |
| | | March 31,
2023 | | December 31,
2022 | | Balance | | Maturity
Date |
| Multifamily | | | | | | | | | | | | | | | | |
Metropolitan and Lofts at
40 Park (b) (c) | | 189 | | units | | 25.00 | % | | $ | 1,364 | | | $ | 1,747 | | | $ | 60,767 | | | (d) | | (d) |
| RiverTrace at Port Imperial | | 316 | | units | | 22.50 | % | | 4,954 | | | 5,114 | | | 82,000 | | | 11/10/26 | | 3.21 | % |
| Capstone at Port Imperial | | 360 | | units | | 40.00 | % | | 22,803 | | | 23,234 | | | 135,000 | | | 12/22/24 | SOFR+ | 1.2 | % |
| Riverpark at Harrison | | 141 | | units | | 45.00 | % | | — | | | — | | | 30,192 | | | 07/01/35 | | 3.19 | % |
| Station House | | 378 | | units | | 50.00 | % | | 32,275 | | | 32,372 | | | 90,942 | | | 07/01/33 | | 4.82 | % |
| Urby at Harborside (e) | | 762 | | units | | 85.00 | % | | 60,725 | | | 61,594 | | | 187,807 | | | 08/01/29 | | 5.197 | % |
| PI North - Land (b) (f) | | 829 | | potential units | | 20.00 | % | | 1,678 | | | 1,678 | | | — | | | — | | | — |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Other (g) | | | | | | | | 419 | | | 419 | | | — | | | — | | | — |
| Totals: | | | | | | | | $ | 124,218 | | | $ | 126,158 | | | $ | 586,708 | | | | | |
(a)Company's effective ownership % represents the Company's entitlement to residual distributions after payments of priority returns, where applicable.
(b)The Company's ownership interests in this venture are subordinate to its partner's preferred capital balance and the Company is not expected to meaningfully participate in the venture's cash flows in the near term.
(c)Through the joint venture, the Company also owns a 25 percent interest in a 50,973 square feet retail building ("Shops at 40 Park") and a 50 percent interest in a 59-unit, five story multifamily rental property ("Lofts at 40 Park").
(d)Property debt balance consists of: (i) an interest only loan, collateralized by the Metropolitan at 40 Park, with a balance of $36,500, bears interest at LIBOR +2.85 percent, matures in October 2023; (ii) an amortizable loan, collateralized by the Shops at 40 Park, with a balance of $6,067, bears interest at LIBOR +1.50 percent and matured in October 2022. The loan was extended on October 11, 2022, for three months and matured in January 2023 with a fixed rate of 5.125%. On January 10, 2023, the loan was modified bearing interest at SOFR +2% and matures in January 2025; (iii) an interest only loan, collateralized by the Lofts at 40 Park, with a balance of $18,200, which bears interest at LIBOR +1.50 percent and matured in January 2023. On January 10, 2023, the loan was extended for three months and prior to its maturity date, it was extended an additional three months to July 1, 2023.
(e)The Company owns an 85 percent interest with shared control over major decisions such as, approval of budgets, property financings and leasing guidelines. The Company had guaranteed $22 million of the principal outstanding debt. On February 1, 2023, the lender has released the guarantor of all obligations under the Guaranty Agreement.
(f)The Company owns a 20 percent residual interest in undeveloped land parcels 6 and I that can accommodate the development of 829 multifamily units.
(g)The Company owns other interests in various unconsolidated joint ventures, including interests in assets previously owned and interest in ventures whose businesses are related to its core operations. These ventures are not expected to significantly impact the Company's operations in the near term.
The following is a summary of the Company’s equity in earnings (loss) of unconsolidated joint ventures for the three months ended March 31, 2023 and 2022 (dollars in thousands):
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | |
| Entity / Property Name | | 2023 | | 2022 | | | | |
| Multifamily | | | | | | | | |
| Metropolitan and Lofts at 40 Park | | $ | (282) | | | $ | (139) | | | | | |
| RiverTrace at Port Imperial | | 137 | | | 67 | | | | | |
| Capstone at Port Imperial | | (187) | | | 26 | | | | | |
| Riverpark at Harrison | | 337 | | | — | | | | | |
| Station House | | (97) | | | (358) | | | | | |
| Urby at Harborside | | 66 | | | (26) | | | | | |
| PI North - Land | | (40) | | | (70) | | | | | |
| Liberty Landing | | (2) | | | — | | | | | |
| Other | | | | | | | | |
| Other | | — | | | 13 | | | | | |
| | | | | | | | |
| Company's equity in earnings (loss) of unconsolidated joint ventures (a) | | $ | (68) | | | $ | (487) | | | | | |
(a)Amounts are net of amortization of basis differences of $154 and $154 for the three months ended March 31, 2023 and 2022, respectively.
The following is a summary of the combined financial position of the unconsolidated joint ventures in which the Company had investment interests as of March 31, 2023 and December 31, 2022 (dollars in thousands):
| | | | | | | | | | | | | | |
| | March 31,
2023 | | December 31,
2022 |
| Assets: | | | | |
| Rental Property, net | | $ | 756,963 | | | $ | 745,210 | |
| Other assets | | 37,800 | | | 39,241 | |
| Total assets | | $ | 794,763 | | | $ | 784,451 | |
| Liabilities and partners'/members' capital: | | | | |
| Mortgages and loans payable | | $ | 586,708 | | | $ | 587,913 | |
| Other liabilities | | 16,217 | | | 15,545 | |
| Partners'/members' capital | | 191,838 | | | 180,993 | |
| Total liabilities and partners'/members' capital | | $ | 794,763 | | | $ | 784,451 | |
The following is a summary of the combined results from operations of the unconsolidated joint ventures for the period in which the Company had investment interests during the three months ended March 31, 2023 and 2022, respectively (dollars in thousands):
| | | | | | | | | | | | | | |
| | Three Months Ended
March 31, |
| | 2023 | | 2022 |
| Total revenues | | $ | 21,825 | | | $ | 36,127 | |
| Operating and other expenses | | (8,444) | | | (25,499) | |
| Depreciation and amortization | | (5,565) | | | (6,560) | |
| Interest expense | | (7,713) | | | (6,776) | |
| Net income (loss) | | $ | 103 | | | $ | (2,708) | |
5. DEFERRED CHARGES AND OTHER ASSETS, NET
| | | | | | | | | | | | | | |
| (dollars in thousands) | | March 31,
2023 | | December 31,
2022 |
| Deferred leasing costs | | $ | 54,674 | | $ | 59,651 |
| Deferred financing costs - revolving credit facility (a) | | 6,684 | | 6,684 |
| | 61,358 | | 66,335 |
| Accumulated amortization | | (26,792) | | (30,471) | |
| Deferred charges, net | | 34,566 | | 35,864 |
| Notes receivable (b) | | 561 | | 1,309 |
| In-place lease values, related intangibles and other assets, net (c) | | 11,462 | | 12,298 |
| Right of use assets (c) | | 2,896 | | 2,896 |
| Prepaid expenses and other assets, net | | 38,907 | | 43,795 |
| | | | |
| Total deferred charges and other assets, net | | $ | 88,392 | | $ | 96,162 |
(a)Deferred financing costs related to all other debt liabilities (other than for the revolving credit facility) are netted against those debt liabilities for all periods presented. See Note 2 to the Company's 2022 10-K: Significant Accounting Policies – Deferred Financing Costs.
(b)As of March 31, 2023 and December 31, 2022, respectively, includes an interest-free note receivable with a net present value of $42 thousand and $0.2 million which matures in April 2023. The Company believes this balance is fully collectible. Also includes $0.4 million, net of a loan loss allowance of $21 thousand, as of March 31, 2023 and $1.0 million, net of a loan loss allowance of $26.0 thousand, as of December 31, 2022, of seller-financing provided by the Company to the buyers of the Metropark portfolio. The receivable is secured against available cash of one of the Metropark properties disposed of and earned an annual return of four percent for 90 days after the disposition, with the interest rate increased to 15 percent through November 18, 2021 and to 10 percent thereafter, pursuant to an amended operating agreement.
(c)This amount has a corresponding liability of $3.2 million as of both March 31, 2023 and December 31, 2022, which is included in Accounts payable, accrued expense and other liabilities. See Note 12: Commitments and Contingencies – Ground Lease agreements for further details.
DERIVATIVE FINANCIAL INSTRUMENTS
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.
The changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in accumulated other comprehensive income and subsequently reclassified into earnings in the period that the hedged forecasted
transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next 12 months, the Company estimates $2.3 million will be reclassified as a decrease to interest expense.
As of March 31, 2023, the Company had four interest rate caps outstanding with a notional amount of $548 million designated as cash flow hedges of interest rate risk.
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as of March 31, 2023 and December 31, 2022 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | |
Asset Derivatives designated
as hedging instruments | | Fair Value | | Balance sheet location |
| March 31,
2023 | | December 31,
2022 | |
| Interest rate caps | | $ | 8,122 | | | $ | 9,808 | | | Deferred charges and other assets |
The table below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Operations for the three months ending March 31, 2023 and 2022 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivatives in Cash Flow Hedging Relationships | | Amount of Gain or (Loss) Recognized in OCI on Derivative | | Location of Gain or (Loss) Reclassified from Accumulated OCI into Income | | Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income | Total Amount of Interest Expense presented in the consolidated statements of operations |
| Three months ended March 31, | | 2023 | | 2022 | | | 2023 | | 2022 | | 2023 | | 2022 |
| Interest Rate Caps | | $ | (524) | | | $ | 2,182 | | | Interest expense | | $ | 421 | | | $ | 1 | | | $ | 22,014 | | | $ | 11,606 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Credit-risk-related Contingent Features
As of March 31, 2023, the Company did not have any interest rate derivatives in a net liability position.
6. RESTRICTED CASH
Restricted cash generally includes tenant and resident security deposits for certain of the Company’s properties, and escrow and reserve funds for debt service, real estate taxes, property insurance, capital improvements, tenant improvements and leasing costs established pursuant to certain mortgage financing arrangements, and is comprised of the following (dollars in thousands):
| | | | | | | | | | | | | | |
| | March 31,
2023 | | December 31,
2022 |
| Security deposits | | $ | 9,512 | | $ | 9,175 |
| Escrow and other reserve funds | | 10,130 | | 11,692 |
| | | | |
| Total restricted cash | | $ | 19,642 | | $ | 20,867 |
7. DISCONTINUED OPERATIONS
The Company announced that its Board had determined to sell the Company’s entire Office Portfolio, including both the suburban and waterfront office portfolios. As the decision to sell the Office Portfolio represented a strategic shift in the Company’s operations, the results of certain of these properties that were disposed of or classified as held for sale are being classified as discontinued operations for all periods presented.
In late 2019 through December 31, 2021, the Company completed the sale of all but one of its 37 properties in the suburban office portfolio, totaling 6.3 million square feet, for net sales proceeds of $1.0 billion. The last property in the suburban office portfolio, a 350,000 square foot office property, was reclassified as held for sale at September 30, 2022, and the Company expects to dispose of this property in the second quarter of 2023. As a result of the sales contract in place, the Company determined that the carrying value of this held for sale property was not expected to be recovered from estimated net sales proceeds and accordingly, during the year ended December 31, 2022, recognized an unrealized held for sale loss allowance of $4.4 million.
As of March 31, 2023, the Company also identified as discontinued operations several waterfront office properties totaling approximately 3.7 million square feet, which are located in Jersey City and Hoboken, New Jersey. In addition, the hotels sold were also classified as discontinued operations.
The following table summarizes income from discontinued operations and the related realized gains (losses) and unrealized losses on disposition of rental property and impairments, net, for the three months ended March 31, 2023 and 2022 (dollars in thousands):
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2023 | | 2022 | | | | |
| Total revenues | | $ | 16,682 | | $ | 52,929 | | | | |
| Operating and other expenses | | (8,598) | | | (22,744) | | | | | |
| Depreciation and amortization | | (4,878) | | | (7,676) | | | | | |
| Interest expense | | (822) | | | (3,419) | | | | | |
| | | | | | | | |
| Income from discontinued operations | | 2,384 | | 19,090 | | | | |
| | | | | | | | |
| | | | | | | | |
| Realized gains on disposition of rental property | | 780 | | 1,836 | | | | |
| Realized gains, net | | 780 | | 1,836 | | | | |
| | | | | | | | |
| Total discontinued operations, net | | $ | 3,164 | | $ | 20,926 | | | | |
8. REVOLVING CREDIT FACILITY AND TERM LOANS
On May 6, 2021, the Company entered into a revolving credit and term loan agreement (“2021 Credit Agreement”) with a group of seven lenders that provides for a $250 million senior secured revolving credit facility (the “2021 Credit Facility”) and a $150 million senior secured term loan facility (the “2021 Term Loan”), and delivered written notice to the administrative agent to terminate the 2017 credit agreement, which termination became effective on May 13, 2021.
The terms of the 2021 Credit Facility included: (1) a three year term ending in May 2024; (2) revolving credit loans may be made to the Company in an aggregate principal amount of up to $250 million (subject to increase as discussed below), with a sublimit under the 2021 Credit Facility for the issuance of letters of credit in an amount not to exceed $50 million; and (3) a first priority lien in unencumbered properties of the Company with an appraised value greater than or equal to $800 million which must include the Company’s Harborside 2/3 and Harborside 5 properties; and (4) a facility fee payable quarterly equal to 35 basis points if usage of the 2021 Credit Facility is less than or equal to 50%, and 25 basis points if usage of the 2021 Credit Facility is greater than 50%.
The terms of the 2021 Term Loan included: (1) an eighteen-month term ending in November 2022; (2) a single draw of the term loan commitments up to an aggregate principal amount of $150 million; and (3) a first priority lien in unencumbered properties of the Company with an appraised value greater than or equal to $800 million which must include the Company’s Harborside 2/3 and Harborside 5 properties.
Interest on borrowings under the 2021 Credit Facility and 2021 Term Loan was based on applicable base rate (the “Base Rate”) plus a margin ranging from 125 basis points to 275 basis points depending on the Base Rate elected, currently 0.12%. The Base Rate shall be either (A) the highest of (i) the Wall Street Journal prime rate, (ii) the greater of the then effective (x) Federal Funds Effective Rate, or (y) Overnight Bank Funding Rate plus 50 basis points, and (iii) a LIBO Rate, as adjusted for statutory reserve requirements for eurocurrency liabilities (the “Adjusted LIBO Rate”) and calculated for a one-month interest period, plus 100 basis points (such highest amount being the “ABR Rate”), or (B) the Adjusted LIBO Rate for the applicable interest period; provided, however, that the ABR Rate shall not be less than 1% and the Adjusted LIBO Rate shall not be less than zero.
The 2021 Credit Agreement, which applies to both the 2021 Credit Facility and 2021 Term Loan, included certain restrictions and covenants which limited, among other things the incurrence of additional indebtedness, the incurrence of
liens and the disposition of real estate properties, and which require compliance with financial ratios relating to the minimum collateral pool value ($800 million), maximum collateral pool leverage ratio (40 percent), minimum number of collateral pool properties (two), the maximum total leverage ratio (65 percent), the minimum debt service coverage ratio (1.10 times until May 6, 2022, 1.20 times from May 7, 2022 through May 6, 2023, and 1.40 times thereafter), and the minimum tangible net worth ratio (80% of tangible net worth as of December 31, 2020 plus 80% of net cash proceeds of equity issuances by the General Partner or the Operating Partnership).
The Company was in compliance with its debt covenants under its 2021 Credit Facility as of March 31, 2023.
As of both March 31, 2023 and December 31, 2022, the Company had no borrowings under the 2021 Credit Facility and 2021 Term Loan.
In April 2023, the Company terminated the 2021 Credit Agreement and the 2021 Credit Facility.
9. MORTGAGES, LOANS PAYABLE AND OTHER OBLIGATIONS
The Company has mortgages, loans payable and other obligations which primarily consist of various loans collateralized by certain of the Company’s rental properties, land and development projects. As of March 31, 2023, 20 of the Company’s properties, with a total carrying value of approximately $3.2 billion, are encumbered by the Company's mortgages and loans payable. Payments on mortgages, loans payable and other obligations are generally due in monthly installments of principal and interest, or interest only. The Company was in compliance with its debt covenants under its mortgages and loans payable as of March 31, 2023, except as otherwise disclosed.
A summary of the Company’s mortgages, loans payable and other obligations as of March 31, 2023 and December 31, 2022 is as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Property/Project Name | | Lender | | Effective Rate (a) | | March 31,
2023 | | December 31,
2022 | | Maturity |
| | | | | | | | | | |
| Port Imperial 4/5 Hotel (b) | | Fifth Third Bank | LIBOR+ | 3.40 | % | | $ | — | | | $ | 84,000 | | | — | |
| Portside at Pier One | | CBRE Capital Markets/FreddieMac | | 3.57 | % | | 58,998 | | | 58,998 | | | 08/01/23 |
| Signature Place | | Nationwide Life Insurance Company | | 3.74 | % | | 43,000 | | | 43,000 | | | 08/01/24 |
| Liberty Towers | | American General Life Insurance Company | | 3.37 | % | | 265,000 | | | 265,000 | | | 10/01/24 |
| Haus25 (c) | | QuadReal Finance | LIBOR+ | 2.70 | % | | 297,324 | | | 297,324 | | | 12/01/24 |
| Portside 5/6 (d) | | New York Life Insurance Company | | 4.56 | % | | 97,000 | | | 97,000 | | | 03/10/26 |
| BLVD 425 | | New York Life Insurance Company | | 4.17 | % | | 131,000 | | | 131,000 | | | 08/10/26 |
| BLVD 401 | | New York Life Insurance Company | | 4.29 | % | | 117,000 | | | 117,000 | | | 08/10/26 |
| | | | | | | | | | |
| The Upton (e) | | Bank of New York Mellon | LIBOR+ | 1.58 | % | | 75,000 | | | 75,000 | | | 10/27/26 |
| 145 Front at City Square (f) | | MUFG Union Bank | SOFR+ | 1.71 | % | | 63,000 | | | 63,000 | | | 12/10/26 |
| Riverhouse 9 at Port Imperial (g) | | JP Morgan | SOFR+ | 1.41 | % | | 110,000 | | | 110,000 | | | 06/21/27 |
| Quarry Place at Tuckahoe | | Natixis Real Estate Capital LLC | | 4.48 | % | | 41,000 | | | 41,000 | | | 08/05/27 |
| BLVD 475 N/S | | The Northwestern Mutual Life Insurance Co. | | 2.91 | % | | 165,000 | | | 165,000 | | | 11/10/27 |
| Riverhouse 11 at Port Imperial | | The Northwestern Mutual Life Insurance Co. | | 4.52 | % | | 100,000 | | | 100,000 | | | 01/10/29 |
| Soho Lofts (h) | | New York Community Bank | | 3.77 | % | | 160,000 | | | 160,000 | | | 07/01/29 |
| Port Imperial South 4/5 Garage | | American General Life & A/G PC | | 4.85 | % | | 32,038 | | | 32,166 | | | 12/01/29 |
| Emery at Overlook Ridge | | New York Community Bank | | 3.21 | % | | 72,000 | | | 72,000 | | | 01/01/31 |
| | | | | | | | | | |
| Principal balance outstanding | | | | | | 1,827,360 | | | 1,911,488 | | | |
| Unamortized deferred financing costs | | | | | | (6,862) | | | (7,511) | | | |
| | | | | | | | | | | |
| Total mortgages, loans payable and other obligations, net | | | | | | $ | 1,820,498 | | | $ | 1,903,977 | | | |
(a)Reflects effective rate of debt, including deferred financing costs, comprised of the cost of terminated treasury lock agreements (if any), debt initiation costs, mark-to-market adjustment of acquired debt and other transaction costs, as applicable.
(b)The loan was paid off on disposition of the hotels on February 10, 2023.
(c)This construction loan has a LIBOR floor of 2.0 percent, has a maximum borrowing capacity of $300 million and provides, subject to certain conditions, a one year extension option with a fee of 25 basis points. The Company entered into an interest-rate cap agreement for the mortgage loan.
(d)The Company has guaranteed 10 percent of the outstanding principal, subject to certain conditions.
(e)On October 27, 2021, the Company obtained a $75 million mortgage loan and entered into an interest-rate cap agreement for the mortgage loan.
(f)On January 12, 2023, the Company entered into an interest-rate cap agreement for the mortgage loan.
(g)On June 21, 2022, the Company obtained a $110 million mortgage loan and entered into an interest-rate cap agreement for the mortgage loan.
(h)Effective rate reflects the first five years of interest payments at a fixed rate. Interest payments after that period ends are based on LIBOR plus 2.75% annually.
Cash Paid for Interest and Interest Capitalized
Cash paid for interest for the three months ended March 31, 2023 and 2022 was $20.5 million and $17.8 million (of which $1.1 million and $5.0 million pertained to properties classified as discontinued operations), respectively. Interest capitalized by the Company for the three months ended March 31, 2023 and 2022 was zero and $6.4 million, respectively.
Summary of Indebtedness
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in thousands) | | March 31,
2023 | | December 31,
2022 |
| | | Balance | | Weighted Average
Interest Rate | | Balance | | Weighted Average Interest Rate |
| Fixed Rate & Hedged Debt (a) | | $ | 1,820,498 | | | 4.32 | % | | $ | 1,757,308 | | | 4.27 | % |
| Revolving Credit Facility & Other Variable Rate Debt | | — | | | — | % | | 146,669 | | | 6.86 | % |
| | | | | | | | |
| Totals/Weighted Average: | | $ | 1,820,498 | | | 4.32 | % | | $ | 1,903,977 | | | 4.47 | % |
(a) As of March 31, 2023 and December 31, 2022, includes debt with interest rate caps outstanding with a notional amount of $548 million and $485 million.
10. EMPLOYEE BENEFIT 401(k) PLANS
Employees of the General Partner, who meet certain minimum age and service requirements, are eligible to participate in the Veris Residential, Inc. 401(k) Savings/Retirement Plan (the “401(k) Plan”). Eligible employees may elect to defer from one percent up to 60 percent of their annual compensation on a pre-tax basis to the 401(k) Plan, subject to certain limitations imposed by federal law. The amounts contributed by employees are immediately vested and non-forfeitable. The Company may make discretionary matching or profit sharing contributions to the 401(k) Plan on behalf of eligible participants in any plan year. Participants are always 100 percent vested in their pre-tax contributions and will begin vesting in any matching or profit sharing contributions made on their behalf after two years of service with the Company at a rate of 20 percent per year, becoming 100 percent vested after a total of six years of service with the Company. All contributions are allocated as a percentage of compensation of the eligible participants for the Plan year. The assets of the 401(k) Plan are held in trust and a separate account is established for each participant. A participant may receive a distribution of his or her vested account balance in the 401(k) Plan in a single sum or in installment payments upon his or her termination of service with the Company. Total expense recognized by the Company for the 401(k) Plan for the three months ended March 31, 2023 and 2022 was $147 thousand and $182 thousand, respectively.
11. DISCLOSURE OF FAIR VALUE OF ASSETS AND LIABILITIES
The following disclosure of estimated fair value was determined by management using available market information and appropriate valuation methodologies. However, considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the assets and liabilities at March 31, 2023 and December 31, 2022. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
Cash equivalents, receivables, notes receivables, accounts payable, and accrued expenses and other liabilities are carried at amounts which reasonably approximate their fair values as of March 31, 2023 and December 31, 2022.
The fair value of the Company’s long-term debt, consisting of mortgages, loans payable and other obligations aggregated approximately $1.7 billion and $1.8 billion as compared to the book value of approximately $1.8 billion and $1.9 billion as of March 31, 2023 and December 31, 2022, respectively. The fair value of the Company’s long-term debt was valued using level 3 inputs (as provided by ASC 820, Fair Value Measurements and Disclosures). The fair value was estimated using a discounted cash flow analysis valuation based on the borrowing rates currently available to the Company for loans with similar terms and maturities. The fair value of the mortgage debt was determined by discounting the future contractual interest and principal payments by a market rate. Although the Company has determined that the majority of the inputs used to value its derivative financial instruments fall within level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivative financial instruments utilize level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. The Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivative financial instruments. As a result, the Company has determined that its derivative financial instruments valuations in their entirety are classified in level 2 of the fair value hierarchy.
The notes receivable by the Company are presented at the lower of cost basis or net amount expected to be collected in accordance with ASC 326. For its seller-financing note receivable provided to the buyers of the Metropark portfolio, the Company calculated the net present value of contractual cash flows of the total receivable. The Company accordingly recorded a loan loss allowance charge of $21 thousand at March 31, 2023, which was deducted from the amortized cost basis of the note receivable. Such charge was recorded in Interest and other investment income (loss) for the three months ended March 31, 2023. See Note 5: Deferred charges and other assets, net.
The fair value measurements used in the evaluation of the Company’s rental properties for impairment analysis are considered to be Level 3 valuations within the fair value hierarchy, as there are significant unobservable assumptions. Assumptions that were utilized in the fair value calculations include, but are not limited to, discount rates, market capitalization rates, expected lease rental rates, room rental and food and beverage revenue rates, third-party broker information and information from potential buyers, as applicable.
Valuations of real estate identified as held for sale are based on estimated sale prices, net of estimated selling costs, of such property. In the absence of an executed sales agreement with a set sales price, management’s estimate of the net sales price may be based on a number of unobservable assumptions, including, but not limited to, the Company’s estimates of future cash flows, market capitalization rates and discount rates, if applicable. For developable land, an estimated per-unit market value assumption is also considered based on development rights or plans for the land.
As of March 31, 2023, assumptions that were utilized in the fair value calculation included:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Primary Valuation
Techniques | | Unobservable
Assumptions | | Location
Type | | Range of
Rates |
| Land holdings held for sale on which the Company recognized impairment losses | | Sale prices per purchase and sale agreements
| | Market rate per unit | | Waterfront | | $76,000 - $78,000 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
As of March 31, 2023, the Company identified as held for sale several office properties totaling approximately 2.2 million square feet and several developable land parcels, which are located in Jersey City, Holmdel and Parsippany, New Jersey. As a result of recent sales contracts in place, the Company determined that the carrying value of three land parcels held for sale were not expected to be recovered from estimated net sales proceeds, and accordingly, recorded land and other impairments of $3.4 million during the three months ended March 31, 2023.
Disclosure about fair value of assets and liabilities is based on pertinent information available to management as of March 31, 2023 and December 31, 2022.
The ongoing impact of COVID-19 worldwide has impacted global economic activity and continues to cause volatility in financial markets. The extent to which COVID-19 impacts the Company’s fair value estimates in the future will depend on developments going forward, many of which are highly uncertain and cannot be predicted. In consideration of the
magnitude of such uncertainties under the current climate, management has considered all available information at its properties and in the marketplace to provide its estimates as of March 31, 2023.
12. COMMITMENTS AND CONTINGENCIES
TAX ABATEMENT AGREEMENTS
Pursuant to agreements with certain municipalities, the Company is required to make payments in lieu of property taxes (“PILOT”) on certain of its properties and has tax abatement agreements on other properties, as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | PILOT Payments | | | | |
| Property Name | | Location | | Asset Type | | PILOT
Expiration Dates | | Three Months Ended
March 31, | | |
| | | | 2023 | | 2022 | | | | |
| | | | (Dollars in Thousands) | | |
| 111 River Street (a) | | Hoboken, NJ | | Office | | 4/2022 | | $ | — | | $ | 85 | | | | |
| Harborside Plaza 4A (b) | | Jersey City, NJ | | Office | | 2/2022 | | — | | 218 | | | | |
| Harborside Plaza 5 (c) | | Jersey City, NJ | | Office | | 6/2022 | | — | | 1,109 | | | | |
| BLVD 401 (Marbella 2) (d) | | Jersey City, NJ | | Multifamily | | 4/2026 | | 403 | | 359 | | | | |
| RiverHouse 11 at Port Imperial (e) | | Weehawken, NJ | | Multifamily | | 7/2033 | | 374 | | 350 | | | | |
| Port Imperial 4/5 Hotel (f) | | Weehawken, NJ | | Hotel | | 12/2033 | | 224 | | 733 | | | | |
| RiverHouse 9 at Port Imperial (g) | | Weehawken, NJ | | Multifamily | | 6/2046 | | 382 | | 322 | | | | |
| Haus25 (h) | | Jersey City, NJ | | Mixed-Use | | 3/2047 | | 574 | | — | | | | |
| The James (i) | | Park Ridge, NJ | | Multifamily | | 6/2051 | | 143 | | — | | | | |
| | | | | | | | | | | | | | |
| Total Pilot taxes | | | | | | | | $ | 2,100 | | $ | 3,176 | | | | |
(a)The property was disposed of in the first quarter of 2022.
(b)The annual PILOT is equal to two percent of Total Project Costs, as defined. The total Project Costs are $49.5 million.
(c)The annual PILOT is equal to two percent of Total Project Costs, as defined. The total Project Costs are $170.9 million.
(d)The annual PILOT is equal to ten percent of Gross Revenues for years 1-4, 12 percent for years 5-8 and 14 percent for years 9-10, as defined.
(e)The annual PILOT is equal to 12 percent of Gross Revenues for years 1-5, 13 percent for years 6-10 and 14 percent for years 11-15, as defined.
(f)The annual PILOT is equal to two percent of Total Project Costs, as defined. The property was disposed of during the first quarter of 2023.
(g)The annual PILOT is equal to 11 percent of Gross Revenues for years 1-10, 12.5 percent for years 11-18 and 14 percent for years 19-25, as defined.
(h)For a term of 25 years following substantial completion, which occurred in April 2022. The annual PILOT is equal to seven percent of Gross Revenues, as defined.
(i)The property was acquired in July 2022. For a term of 30 years following substantial completion which occurred in June 2021. The annual PILOT is equal to 10 percent of Gross Revenues for years 1-10, 11.5 percent for years 11-21 and 12.5 percent for years 22-30, as defined.
At the conclusion of the above-referenced agreements, it is expected that the properties will be assessed by the municipality and be subject to real estate taxes at the then prevailing rates.
LITIGATION
The Company is a defendant in litigation arising in the normal course of its business activities. Management does not believe that the ultimate resolution of these matters will have a materially adverse effect upon the Company’s financial condition taken as whole.
GROUND LEASE AGREEMENTS
Future minimum rental payments under the terms of all non-cancelable ground leases under which the Company is the lessee, as of March 31, 2023 and December 31, 2022, are as follows (dollars in thousands):
| | | | | | | | |
| Year | | As of March 31, 2023 Amount |
| April 1 through December 31, 2023 | | $ | 144 |
| 2024 | | 192 |
| 2025 | | 199 |
| 2026 | | 199 |
| 2027 | | 200 |
| 2028 through 2101 | | 31,664 |
| Total lease payments | | 32,598 |
| Less: imputed interest | | (29,357) | |
| | |
| Total | | $ | 3,241 |
| | | | | | | | |
| Year | | As of December 31, 2022 Amount |
| 2023 | | $ | 192 |
| 2024 | | 192 |
| 2025 | | 199 |
| 2026 | | 199 |
| 2027 | | 200 |
| 2028 through 2101 | | 31,664 |
| Total lease payments | | 32,646 |
| Less: imputed interest | | (29,418) | |
| | |
| Total | | $ | 3,228 |
Ground lease expense incurred by the Company amounted to $265 thousand and $348 thousand for the three months ended March 31, 2023 and 2022, respectively.
In accordance with ASU 2016-02 (Topic 842), the Company capitalized operating leases for two ground leases, which had a balance of $2.9 million at March 31, 2023. Such amount represents the net present value (“NPV”) of future payments detailed above. The incremental borrowing rate used to arrive at the NPV was 7.618 percent for the ground lease terms of 82.58 years each. These rates were arrived at by adjusting the fixed rates of the Company’s mortgage debt with debt having terms approximating the remaining lease term of the Company’s ground leases and calculating notional rates for fully-collateralized loans.
OTHER
As of March 31, 2023, the Company has outstanding stay-on award agreements with 24 employees, which provides them with the potential to receive compensation, in cash or Company stock at the employees’ option, contingent upon remaining with the Company in good standing until the occurrence of certain corporate transactions, which have not been identified. The total potential cost of such awards is currently estimated to be up to approximately $3.0 million, including the potential future issuance of up to 33,866 shares of the Company’s common stock. Such cash or stock awards would only be earned and payable if such transaction was identified and communicated to the employee within seven years of the agreement dates, all of which were signed in late 2020 and early 2021, and all other conditions were satisfied.
13. TENANT LEASES
The Company’s consolidated office properties are leased to tenants under operating leases with various expiration dates through 2043. Substantially all of the commercial leases provide for annual base rents plus recoveries and escalation charges based upon the tenant’s proportionate share of and/or increases in real estate taxes and certain operating costs, as defined, and the pass-through of charges for electrical usage.
Future minimum rentals to be received under non-cancelable commercial operating leases (excluding properties classified as discontinued operations) at March 31, 2023 and December 31, 2022 are as follows (dollars in thousands):
| | | | | | | | |
| Year | | As of March 31, 2023 Amount |
| April 1 through December 31, 2023 | | $ | 10,818 |
| 2024 | | 13,904 |
| 2025 | | 12,737 |
| 2026 | | 10,606 |
| 2027 | | 7,531 |
| 2028 and thereafter | | 42,794 |
| | |
| Total | | $ | 98,390 |
| | | | | | | | |
| Year | | As of December 31, 2022 Amount |
| 2023 | | $ | 14,983 |
| 2024 | | 13,733 |
| 2025 | | 12,389 |
| 2026 | | 10,251 |
| 2027 | | 7,169 |
| 2028 and thereafter | | 42,188 |
| | |
| Total | | $ | 100,713 |
Multifamily rental property residential leases are excluded from the above table as they generally expire within one year.
14. REDEEMABLE NONCONTROLLING INTERESTS
The Company evaluates the terms of the partnership units issued in accordance with the FASB’s Distinguishing Liabilities from Equity guidance. Units which embody an unconditional obligation requiring the Company to redeem the units for cash after a specified or determinable date (or dates) or upon the occurrence of an event that is not solely within the control of the issuer are determined to be contingently redeemable under this guidance and are included as Redeemable noncontrolling interests and classified within the mezzanine section between Total liabilities and Stockholders’ equity on the Company’s Consolidated Balance Sheets. Convertible units for which the Company has the option to settle redemption amounts in cash or Common Stock are included in the caption Noncontrolling interests in subsidiaries within the equity section on the Company’s Consolidated Balance Sheet.
Rockpoint Transaction
On February 27, 2017, the Company, Veris Residential Trust (“VRT”), the Company’s subsidiary through which the Company conducts its multifamily residential real estate operations, Veris Residential Partners, L.P. (“VRLP”), the operating partnership through which VRT conducts all of its operations, and certain other affiliates of the Company entered into a preferred equity investment agreement (the “Original Investment Agreement”) with certain affiliates of Rockpoint Group, L.L.C. (Rockpoint Group, L.L.C. and its affiliates, collectively, “Rockpoint”). The Original Investment Agreement provided for VRT to contribute property to VRLP in exchange for common units of limited partnership interests in VRLP (the “Common Units”) and for multiple equity investments by Rockpoint in VRLP from time to time for up to an aggregate of $300 million of preferred units of limited partnership interests in VRLP (the “Preferred Units”). The initial closing under the Original Investment Agreement occurred on March 10, 2017 for $150 million of Preferred Units and the parties agreed that the Company’s contributed equity value (“VRT Contributed Equity Value”), was $1.23 billion at closing. During the year ended December 31, 2018, a total additional amount of $105 million of Preferred Units were issued and sold to Rockpoint pursuant to the Original Investment Agreement. During the year ended December 31, 2019, a total additional amount of $45 million of Preferred Units were issued and sold to Rockpoint pursuant to the Original Investment Agreement, which brought the Preferred Units to the full balance of $300 million. In addition, certain contributions of property to VRLP by VRT subsequent to the execution of the Original Investment Agreement resulted in VRT being issued approximately $46 million of Preferred Units and Common Units in VRLP prior to June 26, 2019.
On June 26, 2019, the Company, VRT, VRLP, certain other affiliates of the Company and Rockpoint entered into an additional preferred equity investment agreement (the “Add On Investment Agreement”). The closing under the Add On Investment Agreement occurred on June 28, 2019. Pursuant to the Add On Investment Agreement, Rockpoint invested an additional $100 million in Preferred Units and the Company and VRT agreed to contribute to VRLP two additional properties located in Jersey City, New Jersey. The Company used the $100 million in proceeds received to repay outstanding borrowings under its revolving credit facility and other debt by June 30, 2019. In addition, Rockpoint has a right of first refusal to invest another $100 million in Preferred Units in the event VRT determines that VRLP requires additional capital prior to March 1, 2023 and, subject thereto, VRLP may issue up to approximately $154 million in Preferred Units to VRT or an affiliate so long as at the time of such funding VRT determines in good faith that VRLP has a valid business purpose to use such proceeds. Included in general and administrative expenses for the year ended December 31, 2019 were $371 thousand in fees associated with the modifications of the Original Investment Agreement, which were made upon signing of the Add On Investment Agreement.
Under the terms of the new transaction with Rockpoint, set forth in the Third Amended and Restated Limited Partnership Agreement of VRLP, dated as of June 28, 2019 (the “VRLP Partnership Agreement”), the cash flow from operations of VRLP will be distributable to Rockpoint and VRT as follows:
•first, to provide a 6% annual return to Rockpoint and VRT on their capital invested in Preferred Units (the “Preferred Base Return”);
•second, 95.36% to VRT and 4.64% to Rockpoint until VRT has received a 6% annual return (the “VRT Base Return”) on the equity value of the properties contributed by it to VRLP in exchange for Common Units (previously 95% and 5%, respectively, under the Original Investment Agreement), subject to adjustment in the event VRT contributes additional property to VRLP in the future; and
•third, pro rata to Rockpoint and VRT based on total respective capital invested in and contributed equity value of Preferred Units and Common Units (based on Rockpoint’s $400 million of invested capital at March 31, 2023, this pro rata distribution would be approximately 21.89% to Rockpoint in respect of Preferred Units, 2.65% to VRT in respect of Preferred Units and 75.46% to VRT in respect of Common Units).
VRLP’s cash flow from capital events will generally be distributable by VRLP to Rockpoint and VRT as follows:
•first, to Rockpoint and VRT to the extent there is any unpaid, accrued Preferred Base Return;
•second, as a return of capital to Rockpoint and to VRT in respect of Preferred Units;
•third, 95.36% to VRT and 4.64% to Rockpoint until VRT has received the VRT Base Return in respect of Common Units (previously 95% and 5%, respectively, under the Original Investment Agreement), subject to adjustment in the event VRT contributes additional property to VRLP in the future;
•fourth, 95.36% to VRT and 4.64% to Rockpoint until VRT has received a return of capital based on the equity value of the properties contributed by it to VRLP in exchange for Common Units (previously 95% and 5%,
respectively, under the Original Investment Agreement), subject to adjustment in the event VRT contributes additional property to the capital of VRLP in the future;
•fifth, pro rata to Rockpoint and VRT based on respective total capital invested in and contributed equity value of Preferred and Common Units until Rockpoint has received an 11% internal rate of return (based on Rockpoint’s $400 million of invested capital at March 31, 2023, this pro rata distribution would be approximately 21.89% to Rockpoint in respect of Preferred Units, 2.65% to VRT in respect of Preferred Units and 75.46% to VRT in respect of Common Units); and
•sixth, to Rockpoint and VRT in respect of their Preferred Units based on 50% of their pro rata shares described in “fifth” above and the balance to VRT in respect of its Common Units (based on Rockpoint’s $400 million of invested capital at March 31, 2023, this pro rata distribution would be approximately 10.947% to Rockpoint in respect of Preferred Units, 1.325% to VRT in respect of Preferred Units and 87.728% to VRT in respect of Common Units).
In general, VRLP may not sell its properties in taxable transactions, although it may engage in tax-deferred like-kind exchanges of properties or it may proceed in another manner designed to avoid the recognition of gain for tax purposes.
In connection with the Add On Investment Agreement, on June 26, 2019, VRT increased the size of its board of trustees from six to seven persons, with five trustees being designated by the Company and two trustees being designated by Rockpoint.
In addition, as was the case under the Original Investment Agreement, VRT and VRLP are required to obtain Rockpoint’s consent with respect to:
•debt financings in excess of a 65% loan-to-value ratio;
•corporate level financings that are pari-passu or senior to the Preferred Units;
•new investment opportunities to the extent the opportunity requires an equity capitalization in excess of 10% of VRLP’s NAV;
•new investment opportunities located in a Metropolitan Statistical Area where VRLP owns no property as of the previous quarter;
•declaration of bankruptcy of VRT;
•transactions between VRT and the Company, subject to certain limited exceptions;
•any equity granted or equity incentive plan adopted by VRLP or any of its subsidiaries; and
•certain matters relating to the Credit Enhancement Note (as defined below) between the Company and VRLP (other than ordinary course borrowings or repayments thereunder).
Under a Discretionary Demand Promissory Note (the “Credit Enhancement Note”), the Company may provide periodic cash advances to VRLP. The Credit Enhancement Note provides for an interest rate equal to the London Inter-Bank Offered Rate plus fifty (50) basis points above the applicable interest rate under the Company’s revolving credit facility. The maximum aggregate principal amount of advances at any one time outstanding under the Credit Enhancement Note is limited to $50 million, an increase of $25 million from the prior transaction.
VRT and VRLP also have agreed, as was the case under the Original Investment Agreement, to register the Preferred Units under certain circumstances in the future in the event VRT or VRLP becomes a publicly traded company.
During the period commencing on June 28, 2019 and ending on March 1, 2023 (the “Lockout Period”), Rockpoint’s interest in the Preferred Units cannot be redeemed or repurchased, except in connection with (a) a sale of all or substantially all of VRLP or a sale of a majority of the then-outstanding interests in VRLP, in each case, which sale is not approved by Rockpoint, or (b) a spin-out or initial public offering of common stock of VRT, or distributions of VRT equity interests by the Company or its affiliates to shareholders or their respective parent interestholders (an acquisition pursuant clauses (a) or (b) above, an “Early Purchase”). VRT has the right to acquire Rockpoint’s interest in the Preferred Units in connection with an Early Purchase for a purchase price generally equal to (i) the amount that Rockpoint would receive upon the sale of the assets of VRLP for fair market value and a distribution of the net sale proceeds in accordance with (A) the capital event distribution priorities discussed above (in the case of certain Rockpoint Preferred Holders) and (B) the distribution priorities applicable in the case of a liquidation of VRLP (in the case of the other Rockpoint Preferred Holder), plus (ii) a make whole premium (such purchase price, the “Purchase Payment”). The make whole premium is an amount equal to (i) $173.5 million until December 28, 2020, or $198.5 million thereafter, less distributions theretofore made to
Rockpoint with respect to its Preferred Base Return or any deficiency therein, plus (ii) $1.5 million less certain other distributions theretofore made to Rockpoint.
The fair market value of VRLP’s assets is determined by a third party appraisal of the net asset value (“NAV”) of VRLP and the fair market value of VRLP’s assets, to be completed within ninety (90) calendar days of March 1, 2023 and annually thereafter.
After the Lockout Period, either VRT may acquire from Rockpoint, or Rockpoint may sell to VRT, all, but not less than all, of Rockpoint’s interest in the Preferred Units (each, a “Put/Call Event”) for a purchase price equal to the Purchase Payments (determined without regard to the make whole premium and any related tax allocations). An acquisition of Rockpoint’s interest in the Preferred Units pursuant to a Put/Call Event is generally required to be structured as a purchase of the common equity in the applicable Rockpoint entities holding direct or indirect interests in the Preferred Units (the “Put/Call Interests”). Subject to certain exceptions, Rockpoint also has a right of first offer and a participation right with respect to other common equity interests of VRLP or any subsidiary of VRLP that may be offered for sale by VRLP or its subsidiaries from time to time. Upon a Put/Call Event, other than in the event of a sale of VRLP, Rockpoint may elect to convert all, but not less than all, of its Preferred Units to Common Units in VRLP.
As such, the Preferred Units contain a substantive redemption feature that is outside of the Company’s control and accordingly, pursuant to ASC 480-1—S99-3A, the Preferred Units are classified in mezzanine equity measured based on the estimated future redemption value as of March 31, 2023. The Company determines the redemption value of these interests by hypothetically liquidating the estimated NAV of the VRT real estate portfolio including debt principal through the applicable waterfall provisions of the new transaction with Rockpoint. The estimation of NAV includes unobservable inputs that consider assumptions of market participants in pricing the underlying assets of VRLP. For properties under development, the Company applies a discount rate to the estimated future cash flows allocable to the Company during the period under construction and then applies a direct capitalization method to the estimated stabilized cash flows. For operating properties, the direct capitalization method is used by applying a capitalization rate to the projected net operating income. For developable land holdings, an estimated per-unit market value assumption is considered based on development rights or plans for the land. Estimated future cash flows used in such analyses are based on the Company’s business plan for each respective property including capital expenditures, management’s views of market and economic conditions, and considers items such as current and future rental rates, occupancies and market transactions for comparable properties. The estimated future redemption value of the Preferred Units, including current preferred return payments of $2.0 million is approximately $480.0 million as of March 31, 2023.
On April 5, 2023, VRT delivered notice to Rockpoint that VRT was exercising its right to purchase and redeem the Put/Call Interests from Rockpoint. On April 6, 2023, Rockpoint delivered notice to VRT that Rockpoint was exercising its right under the VRLP Partnership Agreement to defer the closing of VRT’s purchase and redemption of the Put/Call Interests for one year. Within ninety (90) days of March 1, 2024, VRLP must engage an appraiser mutually agreed by VRT and Rockpoint or otherwise selected pursuant to VRLP Partnership Agreement, to determine the fair market value of the Partnership’s assets, which valuation will be used to determine the Purchase Payments (determined without regard to the make whole premium). Closing of (i) the purchase and redemption of the Put/Call Interests, or, (ii) if a Rockpoint conversion election has been made, the issuance of Common Interests in VRLP will occur within thirty (30) calendar days following the determination of the fair market value of VRLP’s assets and the Purchase Payments (determined without regard to the make whole premium), which closing will occur no earlier than the second quarter of 2024.
Preferred Units
On February 3, 2017, the Operating Partnership issued 42,800 shares of a new class of 3.5 percent Series A Preferred Limited Partnership Units of the Operating Partnership (the “Series A Units”). The Series A Units were issued to the Company’s partners in the Plaza VIII & IX Associates L.L.C. joint venture that owns a development site adjacent to the Company’s Harborside property in Jersey City, New Jersey as non-cash consideration for their approximate 37.5 percent interest in the joint venture.
Each Series A Unit has a stated value of $1,000, pays dividends quarterly at an annual rate of 3.5 percent (subject to increase under certain circumstances), is convertible into 28.15 common units of limited partnership interests of the Operating Partnership beginning generally five years from the date of issuance, or an aggregate of up to 1,204,820 common units. The conversion rate was based on a value of $35.52 per common unit. The Series A Units have a liquidation and dividend preference senior to the common units and include customary anti-dilution protections for stock splits and similar
events. The Series A Units are redeemable for cash at their stated value beginning five years from the date of issuance at the option of the holder. During the three months ended March 31, 2022, 12,000 Series A Units were redeemed for cash at the stated value.
On February 28, 2017, the Operating Partnership authorized the issuance of 9,213 shares of a new class of 3.5 percent Series A-1 Preferred Limited Partnership Units of the Operating Partnership (the “Series A-1 Units”). 9,122 Series A-1 Units were issued on February 28, 2017 and an additional 91 Series A-1 Units were issued in April 2017 pursuant to acquiring additional interests in a joint venture that owns Monaco Towers in Jersey City, New Jersey. The Series A-1 Units were issued as non-cash consideration for the partner’s approximate 13.8 percent ownership interest in the joint venture.
Each Series A-1 Unit has a stated value of $1,000 (the “Stated Value”), pays dividends quarterly at an annual rate equal to the greater of (x) 3.50 percent, or (y) the then-effective annual dividend yield on the General Partner’s common stock, and is convertible into 27.936 common units of limited partnership interests of the Operating Partnership beginning generally five years from the date of issuance, or an aggregate of up to 257,375 Common Units. The conversion rate was based on a value of $35.80 per common unit. The Series A-1 Units have a liquidation and dividend preference senior to the Common Units and include customary anti-dilution protections for stock splits and similar events. The Series A-1 Units are redeemable for cash at their stated value beginning five years from the date of issuance at the option of the holder. The Series A-1 Units are pari passu with the 3.5% Series A Units issued on February 3, 2017.
The following tables set forth the changes in Redeemable noncontrolling interests for the three months ended March 31, 2023 and 2022, respectively (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Series A and
A-1 Preferred
Units
In VRLP | | Rockpoint Interests in VRT | | Total
Redeemable
Noncontrolling
Interests |
| Balance at January 1, 2023 | | $ | 40,231 | | $ | 475,000 | | $ | 515,231 |
| | | | | | |
| | | | | | |
| Net | | 40,231 | | 475,000 | | 515,231 |
| Income Attributed to Noncontrolling Interests | | 350 | | 6,016 | | 6,366 |
| Distributions | | (350) | | | (6,016) | | | (6,366) | |
| Redemption Value Adjustment | | — | | | 4,977 | | 4,977 |
Balance at March 31, 2023 | | $ | 40,231 | | $ | 479,977 | | $ | 520,208 |
| | | | | | | | | | | | | | | | | | | | |
| | Series A and
A-1 Preferred
Units
In VRLP | | Rockpoint
Interests
in VRT | | Total
Redeemable
Noncontrolling
Interests |
| Balance at January 1, 2022 | | $ | 52,324 | | $ | 468,989 | | $ | 521,313 |
| Redemption/Payout | | (12,000) | | — | | (12,000) |
| | | | | | |
| Net | | 40,324 | | 468,989 | | 509,313 |
| Income Attributed to Noncontrolling Interests | | 421 | | 6,016 | | 6,437 |
| Distributions | | (421) | | | (6,016) | | | (6,437) | |
| Redemption Value Adjustment | | (22) | | 3,221 | | 3,199 |
Balance at March 31, 2022 | | $ | 40,302 | | $ | 472,210 | | $ | 512,512 |
15. VERIS RESIDENTIAL, INC. STOCKHOLDERS’ EQUITY AND VERIS RESIDENTIAL, L.P.’S PARTNERS’ CAPITAL
To maintain its qualification as a REIT, not more than 50 percent in value of the outstanding shares of the General Partner may be owned, directly or indirectly, by five or fewer individuals at any time during the last half of any taxable year of the General Partner, other than its initial taxable year (defined to include certain entities), applying certain constructive ownership rules. To help ensure that the General Partner will not fail this test, the General Partner’s Charter provides, among other things, certain restrictions on the transfer of common stock to prevent further concentration of stock ownership. Moreover, to evidence compliance with these requirements, the General Partner must maintain records that
disclose the actual ownership of its outstanding common stock and demands written statements each year from the holders of record of designated percentages of its common stock requesting the disclosure of the beneficial owners of such common stock.
Partners’ Capital in the accompanying consolidated financial statements relates to (a) General Partners’ capital consisting of common units in the Operating Partnership held by the General Partner, and (b) Limited Partners’ capital consisting of common units and LTIP units held by the limited partners. See Note 16: Noncontrolling Interests in Subsidiaries.
The following table reflects the activity of the General Partner capital for the three months ended March 31, 2023 and 2022, respectively (dollars in thousands):
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | |
| | 2023 | | 2022 | | | | |
| Opening Balance | | $ | 1,235,685 | | $ | 1,281,982 | | | | |
| Net loss available to common shareholders | | (19,973) | | | (9,092) | | | | |
| | | | | | | | |
| Redeemable noncontrolling interests | | (4,516) | | | (2,942) | | | | | |
| Redemption of common units for common stock | | 4,859 | | | — | | | | | |
| Shares issued under Dividend Reinvestment and Stock Purchase Plan | | 1 | | 11 | | | | |
| Directors' deferred compensation plan | | 110 | | 110 | | | | |
| Stock Compensation | | 3,471 | | 1,957 | | | | |
| Cancellation of common stock | | (247) | | — | | | | | |
| Other comprehensive income (loss) | | (858) | | 1,986 | | | | |
| Rebalancing of ownership percent between parent and subsidiaries | | (2,002) | | 1,669 | | | | |
| Balance at March 31 | | $ | 1,216,530 | | $ | 1,275,681 | | | | |
Any transactions resulting in the issuance of additional common and preferred stock of the General Partner result in a corresponding issuance by the Operating Partnership of an equivalent amount of common and preferred units to the General Partner.
ATM PROGRAM
On December 13, 2021, the Company entered into a distribution agreement (the “Distribution Agreement”) with J.P. Morgan Securities LLC, BofA Securities, Inc., BNY Mellon Capital Markets, LLC, Capital One Securities, Inc., Comerica Securities, Inc., Goldman Sachs & Co. LLC, R. Seelaus & Co., LLC and Samuel A. Ramirez & Company, Inc., as sales agents. Pursuant to the Distribution Agreement, the Company may issue and sell, from time to time, shares of common stock, par value $0.01 per share, having a combined aggregate offering price of up to $200 million. The Company will pay a commission that will not exceed, but may be lower than, 2% of the gross proceeds of all shares sold through the ATM Program. As of March 31, 2023, the Company had not sold any shares pursuant to the ATM Program.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The General Partner has a Dividend Reinvestment and Stock Purchase Plan (the “DRIP”) which commenced in March 1999 under which approximately 5.4 million shares of the General Partner’s common stock have been reserved for future issuance. The DRIP provides for automatic reinvestment of all or a portion of a participant’s dividends from the General Partner’s shares of common stock. The DRIP also permits participants to make optional cash investments up to $5,000 a month without restriction and, if the Company waives this limit, for additional amounts subject to certain restrictions and other conditions set forth in the DRIP prospectus filed as part of the Company’s effective registration statement on Form S-3 filed with the SEC for the approximately 5.4 million shares of the General Partner’s common stock reserved for issuance under the DRIP.
INCENTIVE STOCK PLAN
In May 2013, the General Partner established the 2013 Incentive Stock Plan (the “2013 Plan”) under which a total of 4,600,000 shares has been reserved for issuance. In June 2021, stockholders of the Company approved amendments to the 2013 Plan to increase the total shares reserved for issuance under the plan from 4,600,000 to 6,565,000 shares.
Stock Options
In addition to stock options issued in June 2021 under the 2013 Plan, in March 2021, the General Partner granted 950,000 stock options with an exercise price equal to the closing price of the Company’s common stock on the grant date of $15.79 per share to the Chief Executive Officer as an employment “inducement award” that is intended to comply with New York Stock Exchange Rule 303A.08. In April 2022, the General Partner granted 250,000 stock options with an exercise price equal to the closing price of the Company’s common stock on the grant date of $16.33 per share to the Chief Investment Officer as an employment “inducement award” that is intended to comply with New York Stock Exchange Rule 303A.08.
There were no stock options that were exercised under any stock option plans for the three months ended March 31, 2023 and 2022, respectively. The Company has a policy of issuing new shares to satisfy stock option exercises.
As of March 31, 2023 and December 31, 2022, the stock options outstanding had a weighted average remaining contractual life of approximately 4.3 and 4.6 years, respectively.
The Company recognized stock options expense of $322 thousand and $253 thousand for the three months ended March 31, 2023 and 2022, respectively.
Appreciation-Only LTIP Units
In March 2019, the Company granted 625,000 Appreciation-Only LTIP Units (“AO LTIP Units”) which were a class of partnership interests in the Operating Partnership that were intended to qualify as “profits interests” for federal income tax purposes. The AO LTIP Units were cancelled and forfeited in March 2023 as they did not vest.
The Company recognized AO LTIP unit expense of $124 thousand and $155 thousand for the three months ended March 31, 2023 and 2022.
Time-based Restricted Stock Awards and Restricted Stock Units
The Company has issued restricted stock units and common stock (“Restricted Stock Awards”) to officers, certain other employees and non-employee members of the Board of Directors of the General Partner, which allow the holders to each receive a certain amount of shares of the General Partner’s common stock generally over a one-year to three-year vesting period. On June 15, 2022, the Company issued Restricted Stock Awards to non-employee members of the Board of Directors of the General Partner which vest within one year, of which 49,784 unvested Restricted Stock Awards were outstanding at March 31, 2023. During the years ended December 31, 2021 and December 31, 2022 and the three months ended March 31, 2023, the Company granted restricted stock units to certain non-executive employees of the Company which will vest after three years, of which 309,192 were still outstanding and unvested as of March 31, 2023. Restricted Stock Awards allow holders to receive shares of the Company’s common stock upon vesting. Vesting of the Restricted Stock Awards issued is based on time and service. All currently outstanding and unvested Restricted Stock Awards provided to the officers, certain other employees, and members of the Board of Directors of the General Partner were issued under the 2013 Plan and as inducement awards.
As of March 31, 2023, the Company had $5.3 million of total unrecognized compensation cost related to unvested Restricted Stock Awards granted under the Company’s stock compensation plans. That cost is expected to be recognized over a weighted average period of 1.8 years.
Long-Term Incentive Plan Awards
The Company has granted long-term incentive plans awards (“LTIP Awards”) to senior management of the Company, including the General Partner’s executive officers. LTIP Awards generally are granted in the form of restricted stock units (each, an “RSU” and collectively, the “RSU LTIP Awards”) and constitute awards under the 2013 Plan. Prior to 2021,
LTIP Awards were in the form of LTIP Units. LTIP Awards are typically issued from the Company’s Outperformance Plan adopted by the General Partner’s Board of Directors. Each RSU entitles the holder to one share of the General Partner's common stock upon vesting. LTIP Awards are subject to forfeiture depending on the extent that awards vest. The number of market-based and performance-based LTIP Units that actually vest for each award recipient will be determined at the end of the related measurement period.
In 2021, the Company has adopted an annual LTIP Award grant program in the form of RSUs. A portion of the RSUs are subject to time-based vesting conditions and will vest in three equal, annual installments over a three year period ending on the three year anniversary of the grant date. Currently, there are 777,685 awards outstanding and unvested.
Another portion of the annual LTIP Awards have market-based vesting conditions, and recipients will only earn the full amount of the market-based RSUs if, over the three-year performance period, the General Partner achieves an absolute TSR target and if the General Partner’s relative TSR as compared to a group of peer REITs exceeds certain thresholds. The market-based award targets are determined annually by the compensation committee of the Board of Directors. Currently, there are 857,004 awards outstanding and unvested.
In addition, the Company has granted RSUs subject to the achievement of adjusted funds from operations targets. The RSU LTIP Awards are designed to align the interests of senior management to relative and absolute performance of the Company over a three years performance period. Currently there are 764,976 awards outstanding and unvested.
In April 2022, the General Partner granted approximately 60,000 RSUs subject to time-vesting conditions, vesting over three years, to three executive officers as “inducement awards” intended to comply with New York Stock Exchange Rule 303A.08.
Prior to vesting, recipients of LTIP Units will generally be entitled to receive per unit distributions equal to one-tenth of the regular quarterly distributions payable on a common share but will not be entitled to receive any special distributions. Distributions with respect to the other nine-tenths of regular quarterly distributions payable on a common unit will accrue but shall only become payable upon vesting of the LTIP Unit.
As of March 31, 2023, the Company had $14.7 million of total unrecognized compensation cost related to unvested LTIP awards granted under the Company’s stock compensation plans. That cost is expected to be recognized over a weighted average period of 2.0 years.
Deferred Stock Compensation Plan For Directors
The Amended and Restated Deferred Compensation Plan for Directors, which commenced January 1, 1999, allows non-employee directors of the Company to elect to defer up to 100 percent of their annual retainer fee into deferred stock units. The deferred stock units are convertible into an equal number of shares of common stock upon the directors’ termination of service from the Board of Directors or a change in control of the Company, as defined in the plan. Deferred stock units are credited to each director quarterly using the closing price of the Company’s common stock on the applicable dividend record date for the respective quarter. Each participating director’s account is also credited for an equivalent amount of deferred stock units based on the dividend rate for each quarter.
During the three months ended March 31, 2023 and 2022, 7,571 and 6,183 deferred stock units were earned, respectively. As of March 31, 2023 and December 31, 2022, there were 73,071 and 66,196 deferred stock units outstanding, respectively.
EARNINGS PER SHARE/UNIT
Basic EPS or EPU excludes dilution and is computed by dividing net income available to common shareholders or unitholders by the weighted average number of shares or units outstanding for the period. Diluted EPS or EPU reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. In the calculation of basic and diluted EPS and EPU, a redemption value adjustment of redeemable noncontrolling interests attributable to common shareholders or unitholders is included in the calculation to arrive at the numerator of net income (loss) available to common shareholders or unitholders.
The following information presents the Company’s results for the three months ended March 31, 2023 and 2022 in accordance with ASC 260, Earnings Per Share (dollars in thousands, except per share amounts):
Veris Residential, Inc.:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | |
| Computation of Basic EPS | | 2023 | | 2022 | | | | |
| Loss from continuing operations | | $ | (19,394) | | | $ | (25,453) | | | | | |
| Add (deduct): Noncontrolling interests in consolidated joint ventures | | 587 | | | 974 | | | | | |
| Add (deduct): Noncontrolling interests in Operating Partnership | | 2,329 | | | 2,779 | | | | | |
| Add (deduct): Redeemable noncontrolling interests | | (6,366) | | | (6,437) | | | | | |
| Add (deduct): Redemption value adjustment of redeemable noncontrolling interests attributable to common shareholders | | (4,516) | | | (2,942) | | | | | |
| Loss from continuing operations available to common shareholders | | $ | (27,360) | | | $ | (31,079) | | | | | |
| Income from discontinued operations available to common shareholders | | 2,871 | | | 19,045 | | | | | |
| Net loss available to common shareholders for basic earnings per share | | (24,489) | | | (12,034) | | | | | |
| | | | | | | | |
| Weighted average common shares | | 91,226 | | | 90,951 | | | | | |
| | | | | | | | |
Basic EPS: | | | | | | | | |
| Loss from continuing operations available to common shareholders | | $ | (0.30) | | | $ | (0.34) | | | | | |
| Income from discontinued operations available to common shareholders | | 0.03 | | | 0.21 | | | | | |
| Net loss available to common shareholders | | $ | (0.27) | | | $ | (0.13) | | | | | |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | |
| Computation of Diluted EPS | | 2023 | | 2022 | | | | |
| Net loss from continuing operations available to common shareholders | | $ | (27,360) | | | $ | (31,079) | | | | | |
| Add (deduct): Noncontrolling interests in Operating Partnership | | (2,329) | | | (2,779) | | | | | |
| Add (deduct): Redemption value adjustment of redeemable noncontrolling interests attributable to the Operating Partnership unitholders | | (461) | | | (291) | | | | | |
| Loss from continuing operations for diluted earnings per share | | (30,150) | | | (34,149) | | | | | |
| Income from discontinued operations for diluted earnings per share | | 3,164 | | | 20,926 | | | | | |
| Net loss available for diluted earnings per share | | $ | (26,986) | | | $ | (13,223) | | | | | |
| | | | | | | | |
| Weighted average common shares | | 100,526 | | | 99,934 | | | | | |
| | | | | | | | |
Diluted EPS: | | | | | | | | |
| Loss from continuing operations available to common shareholders | | $ | (0.30) | | | $ | (0.34) | | | | | |
| Income from discontinued operations available to common shareholders | | 0.03 | | | 0.21 | | | | | |
| Loss available to common shareholders | | $ | (0.27) | | | $ | (0.13) | | | | | |
The following schedule reconciles the weighted average shares used in the basic EPS calculation to the shares used in the diluted EPS calculation (in thousands):
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | |
| | 2023 | | 2022 | | | | |
| Basic EPS shares | | 91,226 | | | 90,951 | | | | | |
| Add: Operating Partnership – common and vested LTIP units | | 9,300 | | | 8,983 | | | | | |
| | | | | | | | |
| | | | | | | | |
| Diluted EPS Shares | | 100,526 | | | 99,934 | | | | | |
| | | | | | | | |
Contingently issuable shares under Restricted Stock Awards were excluded from the denominator during all periods presented as such securities were anti-dilutive during the periods. Shares issuable under all outstanding stock options were excluded from the denominator during all periods presented as such securities were anti-dilutive during the periods. Also not included in the computations of diluted EPS were the unvested LTIP Units and unvested AO LTIP Units as such securities were anti-dilutive during all periods presented. Unvested LTIP Awards outstanding as of March 31, 2023 and 2022 were 1,662,578 and 2,218,081, respectively. Unvested restricted common stock outstanding as of March 31, 2023 and 2022 were 49,784 and 39,529 shares, respectively. Unvested AO LTIP Units outstanding as of March 31, 2022 were 625,000.No dividends were declared per common share for the three-month periods ended March 31, 2023 and 2022.
Veris Residential, L.P.:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | |
| Computation of Basic EPU | | 2023 | | 2022 | | | | |
| Loss from continuing operations | | $ | (19,394) | | | $ | (25,453) | | | | | |
| Add (deduct): Noncontrolling interests in consolidated joint ventures | | 587 | | | 974 | | | | | |
| Add (deduct): Redeemable noncontrolling interests | | (6,366) | | | (6,437) | | | | | |
| Add (deduct): Redemption value adjustment of redeemable noncontrolling interests | | (4,977) | | | (3,233) | | | | | |
| Loss from continuing operations available to unitholders | | (30,150) | | | (34,149) | | | | | |
| Income from discontinued operations available to unitholders | | 3,164 | | | 20,926 | | | | | |
| Net loss available to common unitholders for basic earnings per unit | | $ | (26,986) | | | $ | (13,223) | | | | | |
| | | | | | | | |
| Weighted average common units | | 100,526 | | | 99,934 | | | | | |
| | | | | | | | |
Basic EPU: | | | | | | | | |
| Loss from continuing operations available to unitholders | | $ | (0.30) | | | $ | (0.34) | | | | | |
| Income from discontinued operations available to unitholders | | 0.03 | | | 0.21 | | | | | |
| Net loss available to common unitholders for basic earnings per unit | | $ | (0.27) | | | $ | (0.13) | | | | | |
| | | | | | | | |
| | Three Months Ended
March 31, | | |
| Computation of Diluted EPU | | 2023 | | 2022 | | | | |
| Net loss from continuing operations available to common unitholders | | $ | (30,150) | | | $ | (34,149) | | | | | |
| Income from discontinued operations for diluted earnings per unit | | 3,164 | | | 20,926 | | | | | |
| Net loss available to common unitholders for diluted earnings per unit | | $ | (26,986) | | | $ | (13,223) | | | | | |
| | | | | | | | |
| Weighted average common unit | | 100,526 | | | 99,934 | | | | | |
| | | | | | | | |
Diluted EPU: | | | | | | | | |
| Loss from continuing operations available to common unitholders | | $ | (0.30) | | | $ | (0.34) | | | | | |
| Income from discontinued operations available to common unitholders | | 0.03 | | | 0.21 | | | | | |
| Net loss available to common unitholders | | $ | (0.27) | | | $ | (0.13) | | | | | |
The following schedule reconciles the weighted average units used in the basic EPU calculation to the units used in the diluted EPU calculation (in thousands):
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | |
| | 2023 | | 2022 | | | | |
| Basic EPU units | | 100,526 | | | 99,934 | | | | | |
| | | | | | | | |
| | | | | | | | |
| Diluted EPU Units | | 100,526 | | | 99,934 | | | | | |
Contingently issuable shares under Restricted Stock Awards were excluded from the denominator during all periods presented as such securities were anti-dilutive during the periods. Shares issuable under all outstanding stock options were excluded from the denominator during all periods presented as such securities were anti-dilutive during the periods. Also not included in the computations of diluted EPU were the unvested LTIP Units and unvested AO LTIP Units as such securities were anti-dilutive during all periods presented. Unvested LTIP Awards outstanding as of March 31, 2023 and
2022 were 1,662,578 and 2,218,081, respectively. Unvested restricted common stock outstanding as of March 31, 2023 and 2022 were 49,784 and 39,529 shares, respectively. Unvested AO LTIP Units outstanding as of March 31, 2022 were 625,000.
No distributions were declared per common unit for the three-month periods ended March 31, 2023 and 2022.
16. NONCONTROLLING INTERESTS IN SUBSIDIARIES
Noncontrolling interests in subsidiaries in the accompanying consolidated financial statements relate to (i) common units (“Common Units”) and LTIP units in the Operating Partnership, held by parties other than the General Partner (“Limited Partners”), and (ii) interests in consolidated joint ventures for the portion of such ventures not owned by the Company.
The following table reflects the activity of noncontrolling interests for the three months ended March 31, 2023 and 2022, respectively (dollars in thousands):
| | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
March 31, | | |
| | | 2023 | | 2022 | | | | |
| Opening Balance at January 1 | | $ | 163,652 | | | $ | 167,436 | | | | | |
| Net income | | 3,743 | | | 4,565 | | | | | |
| Unit distributions | | — | | | 218 | | | | | |
| Redeemable noncontrolling interests | | (6,827) | | | (6,728) | | | | | |
| Change in noncontrolling interests in consolidated joint ventures | | (562) | | | 11 | | | | | |
| Redemption of common units for common stock | | (4,859) | | | — | | | | | |
| Redemption of common units | | (16) | | | (1,442) | | | | | |
| Stock compensation | | 393 | | | 2,533 | | | | | |
| | | | | | | | |
| Other comprehensive (loss) income | | (87) | | | 196 | | | | | |
| Rebalancing of ownership percentage between parent and subsidiaries | | 2,002 | | | (1,669) | | | | | |
| Balance at March 31 | | $ | 157,439 | | | $ | 165,120 | | | | | |
Pursuant to ASC 810, Consolidation, on the accounting and reporting for noncontrolling interests and changes in ownership interests of a subsidiary, changes in a parent’s ownership interest (and transactions with noncontrolling interests unitholders in the subsidiary) while the parent retains its controlling interest in its subsidiary should be accounted for as equity transactions. The carrying value of the noncontrolling interests shall be adjusted to reflect the change in its ownership interest in the subsidiary, with the offset to equity attributable to the parent. Accordingly, as a result of equity transactions which caused changes in ownership percentages between Veris Residential, Inc. stockholders’ equity and noncontrolling interests in the Operating Partnership that occurred during the three months ended March 31, 2023, the Company has increased noncontrolling interests in the Operating Partnership and decreased additional paid-in capital in Veris Residential, Inc. stockholders’ equity by approximately $2.0 million as of March 31, 2023.
NONCONTROLLING INTERESTS IN OPERATING PARTNERSHIP (applicable only to General Partner)
Common Units
During the three months ended March 31, 2023, the Company redeemed for cash 1,168 common units at their fair value of $16 thousand.
Certain individuals and entities own common units in the Operating Partnership. A common unit and a share of Common Stock of the General Partner have substantially the same economic characteristics in as much as they effectively share equally in the net income or loss of the Operating Partnership. Common unitholders have the right to redeem their common units, subject to certain restrictions. The redemption is required to be satisfied in shares of Common Stock, cash, or a combination thereof, calculated as follows: one share of the General Partner’s Common Stock, or cash equal to the fair market value of a share of the General Partner’s Common Stock at the time of redemption, for each common unit. The General Partner, in its sole discretion, determines the form of redemption of common units (i.e., whether a common
unitholder receives Common Stock, cash, or any combination thereof). If the General Partner elects to satisfy the redemption with shares of Common Stock as opposed to cash, it is obligated to issue shares of its Common Stock to the redeeming unitholder. Regardless of the rights described above, the common unitholders may not put their units for cash to the General Partner or the Operating Partnership under any circumstances. When a unitholder redeems a common unit, noncontrolling interests in the Operating Partnership is reduced and Veris Residential, Inc. Stockholders’ equity is increased.
LTIP Units
From time to time, the Company has granted LTIP awards to executive officers of the Company. All of the LTIP Awards granted through January 2021 are in the form of units in the Operating Partnership. See Note 15: Veris Residential, Inc. Stockholders’ Equity and Veris Residential, L.P.’s Partners’ Capital – Long-Term Incentive Plan Awards.
LTIP Units are designed to qualify as “profits interests” in the Operating Partnership for federal income tax purposes. As a general matter, the profits interests characteristics of the LTIP Units mean that initially they will not be economically equivalent in value to a common unit. If and when events specified by applicable tax regulations occur, LTIP Units can over time increase in value up to the point where they are equivalent to common units on a one-for-one basis. After LTIP Units are fully vested, and to the extent the special tax rules applicable to profits interests have allowed them to become equivalent in value to common units, LTIP Units may be converted on a one-for-one basis into common units. Common units in turn have a one-for-one relationship in value with shares of the General Partner’s common stock, and are redeemable on a one-for-one basis for cash or, at the election of the Company, shares of the General Partner’s common stock.
AO LTIP Units (Appreciation-Only LTIP Units)
On March 13, 2019, the Company granted 625,000 AO LTIP Units pursuant to the AO Long Term Incentive Plan Award Agreement. See Note 15: Veris Residential, Inc. Stockholders’ Equity and Veris Residential, L.P.’s Partners’ Capital – Incentive Stock Plan (Appreciation-Only LTIP Units).
AO LTIP Units were a class of partnership interests in the Operating Partnership that were intended to qualify as “profit interests” for federal income tax purposes and generally only allowed the recipient to realize value to the extent the fair market value of a share of Common Stock exceeds the threshold level set at the time the AO LTIP Units were granted, subject to any vesting conditions applicable to the award. The value of vested AO LTIP Units is realized through conversion of the AO LTIP Units into Common Units. The number of Common Units into which vested AO LTIP Units may be converted is determined based on the quotient of (i) the excess of the fair market value of the Common Stock on the conversion date over the threshold level designated at the time the AO LTIP Unit was granted, divided by (ii) the fair market value of the Common Stock on the conversion date. AO LTIP Units, once vested, had a finite term during which they may be converted into Common Units. The AO LTIP Units were cancelled and forfeited in March 2023 as they did not vest.
Noncontrolling Interests Ownership in Operating Partnership
As of March 31, 2023 and December 31, 2022, the noncontrolling interests common unitholders owned 9.0 percent and 9.3 percent of the Operating Partnership, respectively.
NONCONTROLLING INTERESTS IN CONSOLIDATED JOINT VENTURES (applicable to General Partner and Operating Partnership)
The Company consolidates certain joint ventures in which it has ownership interests. Various entities and/or individuals hold noncontrolling interests in these ventures.
PARTICIPATION RIGHTS
The Company’s interests in a potential future development provides for the initial distributions of net cash flow solely to the Company, and thereafter, other parties have participation rights in 50 percent of the excess net cash flow remaining after the distribution to the Company of the aggregate amount equal to the sum of: (a) the Company’s capital contributions, plus (b) an IRR of 10 percent per annum.
17. SEGMENT REPORTING
The Company operates in two business segments: (i) multifamily real estate and services and (ii) commercial and other real estate. The Company provides property management, leasing, acquisition, development, construction and tenant-related services for its commercial and other real estate and multifamily real estate portfolio. The Company’s multifamily services business also provides similar services for third parties. The Company had no revenues from foreign countries recorded for the three months ended March 31, 2023 and 2022. The Company had no long lived assets in foreign locations as of March 31, 2023 and December 31, 2022. The accounting policies of the segments are the same as those described in Note 2: Significant Accounting Policies, excluding depreciation and amortization.
The Company evaluates performance based upon net operating income from the combined properties and operations in each of its real estate segments (commercial and other real estate and multifamily real estate and services). All properties classified as discontinued operations have been excluded.
Selected results of operations for the three months ended March 31, 2023 and 2022 and selected asset information as of March 31, 2023 and December 31, 2022 regarding the Company’s operating segments are as follows. Amounts for prior periods have been restated to conform to the current period segment reporting presentation (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Commercial
& Other Real Estate | | Multifamily
Real Estate & Services (d) | | Corporate
& Other (e) | | Total
Company |
| Total revenues: | | | | | | | | |
| Three months ended: | | | | | | | | |
| March 31, 2023 | | $ | 3,948 | | | $ | 62,977 | | | $ | — | | | $ | 66,925 | |
| March 31, 2022 | | 154 | | | 46,517 | | | (502) | | | 46,169 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Total operating and interest expenses (a): | | | | | | | | |
| Three months ended: | | | | | | | | |
| March 31, 2023 | | $ | 5,005 | | | $ | 27,053 | | | $ | 28,897 | | | $ | 60,955 | |
| March 31, 2022 | | (1,980) | | | 24,786 | | | 29,182 | | | 51,988 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Equity in earnings (loss) of unconsolidated joint ventures: | | | | | | | | |
| Three months ended: | | | | | | | | |
| March 31, 2023 | | $ | — | | | $ | (68) | | | $ | — | | | $ | (68) | |
| March 31, 2022 | | — | | | (487) | | | — | | | (487) | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Net operating income (loss) (b): | | | | | | | | |
| Three months ended: | | | | | | | | |
| March 31, 2023 | | $ | (1,057) | | | $ | 35,856 | | | $ | (28,897) | | | $ | 5,902 | |
| March 31, 2022 | | 2,134 | | | 21,244 | | | (29,684) | | | (6,306) | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Total assets: | | | | | | | | |
| March 31, 2023 | | $ | 586,320 | | | $ | 3,195,735 | | | $ | 18,601 | | | $ | 3,800,656 | |
| December 31, 2022 | | 597,459 | | | 3,302,188 | | | 21,121 | | | 3,920,768 | |
| | | | | | | | |
| Total long-lived assets (c): | | | | | | | | |
| March 31, 2023 | | $ | 542,737 | | | $ | 2,985,057 | | | $ | (1,428) | | | $ | 3,526,366 | |
| December 31, 2022 | | 547,923 | | | 3,101,286 | | | (1,330) | | | 3,647,879 | |
| | | | | | | | |
| Total investments in unconsolidated joint ventures: | | | | | | | | |
| March 31, 2023 | | $ | — | | | 124,218 | | | $ | — | | | $ | 124,218 | |
| December 31, 2022 | | — | | | 126,158 | | | — | | | 126,158 | |
| | | | | | | | |
(a)Total operating and interest expenses represent the sum of: real estate taxes; utilities; operating services; real estate services expenses; general and administrative, acquisition related costs and interest expense (net of interest income). All interest expense, net of interest and other investment income (including for property-level mortgages), is excluded from segment amounts and classified in Corporate & Other for all periods.
(b)Net operating income represents total revenues less total operating and interest expenses (as defined and classified in Note “a”), plus equity in earnings (loss) of unconsolidated joint ventures, for the period.
(c)Long-lived assets are comprised of net investment in rental property and unbilled rents receivable.
(d)Segment assets and operations were owned through a consolidated and variable interest entity commencing in February 2018.
(e)Corporate & Other represents all corporate-level items (including interest and other investment income, interest expense, non-property general and administrative expense), as well as intercompany eliminations necessary to reconcile to consolidated Company totals.
Veris Residential, Inc.
The following schedule reconciles net operating income to net income (loss) available to common shareholders (dollars in thousands):
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | |
| | 2023 | | 2022 | | | | |
| Net operating income (loss) | | $ | 5,902 | | $ | (6,306) | | | | |
| Add (deduct): | | | | | | | | |
| Depreciation and amortization | | (23,876) | | | (18,838) | | | | | |
| | | | | | | | |
| Land and other impairments, net | | (3,396) | | | (2,932) | | | | | |
| | | | | | | | |
| (Loss) Gain on disposition of developable land | | (22) | | 2,623 | | | | |
| | | | | | | | |
| | | | | | | | |
| Other income, net | | 1,998 | | | — | | | | | |
| Loss from continuing operations | | (19,394) | | | (25,453) | | | | | |
| Discontinued operations | | | | | | | | |
| Income from discontinued operations | | 2,384 | | 19,090 | | | | |
| Realized gains (losses) and unrealized gains (losses) on disposition of rental property and impairments, net | | 780 | | 1,836 | | | | |
| Total discontinued operations, net | | 3,164 | | 20,926 | | | | |
| Net loss | | (16,230) | | | (4,527) | | | | | |
| Noncontrolling interests in consolidated joint ventures | | 587 | | 974 | | | | |
| Noncontrolling interests in Operating Partnership | | 2,329 | | 2,779 | | | | |
| Noncontrolling interest in discontinued operations | | (293) | | (1,881) | | | | | |
| Redeemable noncontrolling interests | | (6,366) | | (6,437) | | | | | |
| Net loss available to common shareholders | | $ | (19,973) | | | $ | (9,092) | | | | |
Veris Residential, L.P.
The following schedule reconciles net operating income to net income (loss) available to common unitholders (dollars in thousands):
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | |
| | 2023 | | 2022 | | | | |
| Net operating income (loss) | | $ | 5,902 | | $ | (6,306) | | | | |
| Add (deduct): | | | | | | | | |
| Depreciation and amortization | | (23,876) | | | (18,838) | | | | | |
| | | | | | | | |
| Land and other impairments, net | | (3,396) | | | (2,932) | | | | | |
| | | | | | | | |
| Gain on disposition of developable land | | (22) | | | 2,623 | | | | |
| | | | | | | | |
| | | | | | | | |
| Other income, net | | 1,998 | | | — | | | | | |
| Loss from continuing operations | | (19,394) | | | (25,453) | | | | | |
| Discontinued operations | | | | | | | | |
| Income from discontinued operations | | 2,384 | | 19,090 | | | | |
| Realized gains (losses) and unrealized gains (losses) on disposition of rental property and impairments, net | | 780 | | 1,836 | | | | |
| Total discontinued operations, net | | 3,164 | | 20,926 | | | | |
| Net loss | | (16,230) | | | (4,527) | | | | |
| Noncontrolling interests in consolidated joint ventures | | 587 | | 974 | | | | |
| Redeemable noncontrolling interests | | (6,366) | | | (6,437) | | | | | |
| Net loss available to common unitholders | | $ | (22,009) | | | $ | (9,990) | | | | |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the Consolidated Financial Statements of Veris Residential, Inc. and Veris Residential, L.P. and the notes thereto (collectively, the “Financial Statements”). Certain defined terms used herein have the meaning ascribed to them in the Financial Statements.
Executive Overview
Veris Residential, Inc., together with its subsidiaries, (collectively, the “General Partner”), including Veris Residential, L.P. (the “Operating Partnership”), has been involved in all aspects of commercial real estate development, management and ownership for over 60 years and the General Partner has been a publicly traded REIT since 1994.
The Operating Partnership conducts the business of providing management, leasing, acquisition, development and tenant-related services for its General Partner. The Operating Partnership, through its operating divisions and subsidiaries, including the Veris property-owning partnerships and limited liability companies, is the entity through which all of the General Partner’s operations are conducted. Unless stated otherwise or the context requires, the “Company” refers to the General Partner and its subsidiaries, including the Operating Partnership and its subsidiaries.
As of March 31, 2023, the Company owns or has interests in 33 properties (collectively, the “Properties”) and developable land parcels. These Properties are comprised of 24 multifamily rental properties containing 7,681 apartment units as well as non-core assets comprised of five office properties, four parking/retail properties and eight properties owned by unconsolidated joint ventures in which the Company has investment interests, including seven multifamily properties and a non-core asset. The Properties are located in three states in the Northeast, plus the District of Columbia.
Critical Accounting Policies and Estimates
The accompanying consolidated financial statements include all accounts of the Company, its majority-owned and/or controlled subsidiaries, which consist principally of the Operating Partnership and variable interest entities for which the Company has determined itself to be the primary beneficiary, if any. See Note 2: Significant Accounting Policies – to the Financial Statements, for the Company’s treatment of unconsolidated joint venture interests. Intercompany accounts and transactions have been eliminated.
Accounting Standards Codification (“ASC”) 810, Consolidation, provides guidance on the identification of entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and the determination of which business enterprise, if any, should consolidate the VIEs. Generally, the consideration of whether an entity is a VIE applies when either: (1) the equity investors (if any) lack (i) the ability to make decisions about the entity's activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; (2) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support; or (3) the equity investors have voting rights that are not proportionate to their economic interests and substantially all of the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest. The Company consolidates VIEs in which it is considered to be the primary beneficiary. The primary beneficiary is defined by the entity having both of the following characteristics: (1) the power to direct the activities that, when taken together, most significantly impact the variable interest entity’s performance: and (2) the obligation to absorb losses and right to receive the returns from the VIE that would be significant to the VIE.
The financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are based on management’s historical experience that are believed to be reasonable at the time. However, because future events and their effects cannot be determined with certainty, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates. Certain reclassifications have been made to prior period amounts in order to conform with current period presentation, primarily related to classification of certain properties as discontinued operations. The Company’s critical accounting policies are those which require assumptions to be made about matters that are highly uncertain. Different estimates could have a material effect on the Company’s financial results.
Judgments and uncertainties affecting the application of these policies and estimates may result in materially different amounts being reported under different conditions and circumstances.
These financial statements should be read in conjunction with the Company’s audited Annual Report on Form 10-K for the year ended December 31, 2022, as certain disclosures in this Quarterly Report on Form 10-Q that would duplicate those included in the 10-K are not included in these financial statements.
Results From Operations
The following comparisons for the three months ended March 31, 2023 (“2023”), as compared to the three months ended March 31, 2022 (“2022”), make reference to the following:
(i)“Same-Store Properties,” which represent all in-service properties owned by the Company at December 31, 2021 excluding properties sold, disposed of, removed from service, or being redeveloped or repositioned from January 1, 2022 through March 31, 2023;
(ii)“Acquired and Developed Properties,” which represent all properties acquired by the Company or commencing initial operations from January 1, 2022 through March 31, 2023; and
(iii)“Properties Sold”, which represent properties sold, disposed of, or removed from service (including properties being redeveloped or repositioned) by the Company from January 1, 2022 through March 31, 2023.
Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in thousands) | | Three Months Ended March 31, | | Dollar
Change | | Percent
Change |
| 2023 | | 2022 | | |
| Revenue from rental operations and other: | | | | | | | | |
| Revenue from leases | | $ | 59,678 | | | $ | 40,508 | | | $ | 19,170 | | | 47.3 | % |
| Parking income | | 4,459 | | | 3,682 | | | 777 | | | 21.1 | |
| | | | | | | | |
| Other income | | 1,877 | | | 1,069 | | 808 | | | 75.6 | |
| Total revenues from rental operations | | 66,014 | | | 45,259 | | | 20,755 | | | 45.9 | |
| | | | | | | | |
| Property expenses: | | | | | | | | |
| Real estate taxes | | 11,142 | | | 7,837 | | | 3,305 | | | 42.2 | |
| Utilities | | 2,689 | | | 2,409 | | 280 | | | 11.6 | |
| Operating services | | 11,970 | | | 8,480 | | | 3,490 | | | 41.2 | |
| Total property expenses | | 25,801 | | | 18,726 | | | 7,075 | | | 37.8 | |
| | | | | | | | | |
| Non-property revenues: | | | | | | | | |
| Real estate services | | 911 | | | 910 | | | 1 | | | 0.1 | |
| Total non-property revenues | | 911 | | | 910 | | | 1 | | | 0.1 | |
| | | | | | | | |
| Non-property expenses: | | | | | | | | |
| Real estate services expenses | | 1,943 | | | 2,363 | | (420) | | | (17.8) | |
| General and administrative | | 10,286 | | | 19,451 | | (9,165) | | | (47.1) | |
| Transaction related costs | | 1,027 | | | — | | 1,027 | | | 100.0 | |
| Depreciation and amortization | | 23,876 | | | 18,838 | | 5,038 | | | 26.7 | |
| | | | | | | | |
| Land and other impairments, net | | 3,396 | | | 2,932 | | 464 | | | 15.8 | |
| Total non-property expenses | | 40,528 | | | 43,584 | | | (3,056) | | | (7.0) | |
| Operating income (loss) | | 596 | | | (16,141) | | | 16,737 | | | 103.7 | |
| Other (expense) income: | | | | | | | | |
| Interest expense | | (22,014) | | | (11,606) | | | (10,408) | | | (89.7) | |
| Interest and other investment income | | 116 | | | 158 | | | (42) | | | (26.6) | |
| Equity in earnings (loss) of unconsolidated joint ventures | | (68) | | | (487) | | | 419 | | | 86.0 | |
| | | | | | | | |
| | | | | | | | |
| (Loss) gain on disposition of developable land | | (22) | | | 2,623 | | (2,645) | | | (100.8) | |
| | | | | | | | |
| Other income, net | | 1,998 | | | — | | | 1,998 | | | 100.0 | |
| Total other (expense) income | | (19,990) | | | (9,312) | | | (10,678) | | | 114.7 | |
| Loss from continuing operations | | (19,394) | | | (25,453) | | | 6,059 | | | 23.8 | |
| Discontinued operations: | | | | | | | | |
| Income from discontinued operations | | 2,384 | | | 19,090 | | (16,706) | | | (87.5) | |
| Realized gains (losses) and unrealized gains (losses) on disposition of rental property and impairments, net | | 780 | | | 1,836 | | (1,056) | | | (57.5) | |
| Total discontinued operations | | 3,164 | | | 20,926 | | | (17,762) | | | (84.9) | |
| Net loss | | $ | (16,230) | | | $ | (4,527) | | | $ | (11,703) | | | (258.5) | % |
The following is a summary of the changes in revenue from rental operations and other, and property expenses in 2023, as compared to 2022, divided into Same-Store Properties, Acquired and Developed Properties and Properties Sold in 2022 and 2023 (excluding properties classified as discontinued operations):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(dollars in
thousands) | | Total
Company | | Same-Store
Properties | | Acquired and Developed
Properties | | Properties
Sold in 2022 and 2023 |
| Dollar
Change | | Percent
Change | | Dollar
Change | | Percent
Change | | Dollar
Change | | Percent
Change | | Dollar
Change | | Percent
Change |
| Revenue from rental operations and other: | | | | | | | | | | | | | | | | |
| Revenue from leases | | $ | 19,170 | | | 47.3 | % | | $ | 8,890 | | | 21.9 | % | | $ | 10,280 | | | 25.4 | % | | $ | — | | | — | % |
| Parking income | | 777 | | | 21.1 | | | 576 | | | 15.6 | | | 266 | | | 7.2 | | | (65) | | | (1.7) | |
| | | | | | | | | | | | | | | | |
| Other income | | 808 | | | 75.6 | | | 725 | | | 67.8 | | | 83 | | | 7.8 | | | — | | | — | |
| Total | | $ | 20,755 | | | 45.9 | % | | $ | 10,191 | | | 22.5 | % | | $ | 10,629 | | | 23.5 | % | | $ | (65) | | | (0.1) | % |
| | | | | | | | | | | | | | | | |
| Property expenses: | | | | | | | | | | | | | | | | |
| Real estate taxes | | $ | 3,305 | | | 42.2 | % | | $ | 2,087 | | | 26.6 | % | | $ | 1,291 | | | 16.5 | % | | $ | (73) | | | (0.9) | % |
| Utilities | | 280 | | | 11.6 | | | (104) | | | (4.3) | | | 384 | | | 15.9 | | | — | | | — | |
| Operating services | | 3,490 | | | 41.2 | | | 1,215 | | | 14.3 | | | 2,309 | | | 27.2 | | | (34) | | | (0.3) | |
| Total | | $ | 7,075 | | | 37.8 | % | | $ | 3,198 | | | 17.1 | % | | $ | 3,984 | | | 21.3 | % | | $ | (107) | | | (0.6) | % |
| | | | | | | | | | | | | | | | |
| OTHER DATA: | | | | | | | | | | | | | | | | |
| Number of Consolidated Properties | | 25 | | | | 23 | | | | 2 | | | | 2 | | |
Commercial Square feet (in thousands) | | 3,104 | | | | | 3,104 | | | | | — | | | | | 1,812 | | | |
| Multifamily portfolio (number of units) | | 5,535 | | | | 4,545 | | | | 990 | | | | — | | |
Revenue from leases. Revenue from leases for the Same-Store Properties increased $8.9 million, or 21.9 percent, for 2023 as compared to 2022, due primarily to an increase in market rental rates and a reduction in concessions of the multifamily rental properties.
Parking income. Parking income for the Same-Store Properties increased $0.6 million, or 15.6 percent, for 2023 as compared to 2022 due primarily to increased usage at the parking garages in 2023 as compared to 2022.
Other income. Other income for the Same-Store Properties increased $0.7 million, or 67.8 percent, for 2023 as compared to 2022, due primarily to the return of escrow on a previous transaction.
Real estate taxes. Real estate taxes for the Same-Store Properties increased $2.1 million, or 26.6 percent, for 2023 as compared to 2022, due primarily to increased tax rates primarily related to properties located in Jersey City, New Jersey.
Utilities. Utilities for the Same-Store Properties remained relatively unchanged.
Operating services. Operating services for the Same-Store Properties increased $1.2 million, or 14.3 percent, for 2023 as compared to 2022, due primarily to increased repairs and maintenance costs.
Real estate services revenue. Real estate services revenue (primarily reimbursement of property personnel costs) remained relatively unchanged.
Real estate services expense. Real estate services expense decreased $0.4 million, or 17.8 percent, for 2023 as compared to 2022, due primarily to lower salaries and related expenses from a reduction in third-party services activities.
General and administrative. General and administrative expenses decreased $9.2 million, or 47.1 percent, for 2023 as compared to 2022. This decrease was due primarily to higher severance and related costs in 2022 and cost reductions in 2023.
Depreciation and amortization. Depreciation and amortization increased $5.0 million, or 26.7 percent. This increase was primarily due to an increase of $4.8 million for Acquired and Developed Properties,
Land and other impairments, net. In 2023, the Company recorded net $3.4 million of impairment on a developable land parcel. In 2022, the Company recorded $2.9 million of impairments on developable land parcels. See Note 11: Disclosure of Fair Value of Assets and Liabilities.
Interest expense. Interest expense increased $10.4 million, or 89.7 percent, for 2023 as compared to 2022. The increase is primarily related to increases in LIBOR and SOFR rates as well as a reduction in capitalized interest in 2023 compared to 2022 due to Haus25 being placed in service during 2022.
Interest and other investment income (loss). Interest and other investment income (loss) remained relatively unchanged.
Equity in earnings (loss) of unconsolidated joint ventures. Equity in earnings of unconsolidated joint ventures increased $0.4 million for 2023 as compared to 2022, due primarily to the improved operating performance of its unconsolidated joint ventures due to higher occupancy and rental rates.
Gain on disposition of developable land. In 2022, the Company recognized a gain of $2.6 million on the sale of developable land located in West Windsor, New Jersey.
Other Income, net. In 2023, the Company received insurance proceeds of $1.9 million.
Discontinued operations. For all periods presented, the Company classified 42 office properties and 3 hotels, all but four of which sold as of March 31, 2023, totaling 10.3 million square feet as discontinued operations. The Company recognized income from discontinued operations of $2.4 million in 2023 and $19.1 million in 2022. In 2023 and 2022, the Company recognized realized gains (losses) and unrealized losses on disposition of rental property and impairments, net, of a gain of $0.8 million and $1.8 million, respectively, on these properties. See Note 7: Discontinued Operations to the Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Overview
Rental revenue is the Company’s principal source of funds to pay its material cash commitments consisting of operating expenses, debt service, capital expenditures and dividends, excluding non-recurring capital expenditures. To the extent that the Company’s cash flow from operating activities is insufficient to finance its non-recurring capital expenditures such as property acquisitions, development and construction costs and other capital expenditures, the Company has and expects to continue to finance such activities through other debt and equity financings, proceeds from the sale of properties and joint venture capital.
The Company expects to meet its short-term liquidity requirements generally through its working capital, which may include proceeds from the sales of rental properties and land, and net cash provided by operating activities.
On April 5, 2023, VRT delivered notice to Rockpoint that VRT was exercising its right to purchase and redeem certain interests of Rockpoint and its affiliates in VRT. On April 6, 2023, Rockpoint delivered notice to VRT that Rockpoint was exercising its right under the VRLP Partnership Agreement to defer the closing of VRT’s purchase and redemption of those interests for one year. The Company estimates the redemption value of these interests to be approximately $480 million, subject to determination of a closing date for the transaction and completion of the final appraisal required by the VRPLP Partnership Agreement. See Note 14: Redeemable Noncontrolling Interests – Rockpoint transaction, for a discussion of the terms and conditions of the redemption of Rockpoint’s interests in VRT.
REIT Restrictions
To maintain its qualification as a REIT under the IRS Code, the General Partner must make annual distributions to its stockholders of at least 90 percent of its REIT taxable income, determined without regard to the dividends paid deduction and by excluding net capital gains. However, any such distributions, whether for federal income tax purposes or otherwise, would be paid out of available cash, including borrowings and other sources, after meeting operating requirements, preferred stock dividends and distributions, and scheduled debt service on the Company’s debt. If and to the extent the Company retains and does not distribute any net capital gains, the General Partner will be required to pay federal, state and local taxes on such net capital gains at the rate applicable to capital gains of a corporation.
The Company has suspended its common dividends since September 2020, which was initially a strategic decision by the Board to allow for greater financial flexibility during the COVID-19 pandemic and to retain incremental capital to support the Company’s value-enhancing investments across the portfolio and was based upon its estimates of taxable income. Based upon its current estimates of taxable income and its expectation of disposition activity, the Board has made the strategic decision to continue to suspend its dividend to support the transformation of the Company to a pure-play multifamily REIT and will re-evaluate this decision when such transition is substantially complete.
The declaration and payment of dividends and distributions will continue to be determined by the Board of Directors of the General Partner in light of conditions then existing, including the Company's earnings, cash flows, financial condition, capital requirements, debt maturities, the availability of debt and equity capital, applicable REIT and legal restrictions and general overall economic conditions and other factors.
The dividends and distributions payable at March 31, 2023 and December 31, 2022 represent amounts payable on unvested LTIP units.
Unencumbered Properties
As of March 31, 2023, the Company had one unencumbered property with a carrying value of $14.3 million representing 3.8 percent of the Company’s total consolidated property count.
Cash Flows
Cash, cash equivalents and restricted cash increased by $9.5 million to $57.1 million at March 31, 2023, compared to $47.6 million at December 31, 2022. This increase is comprised of the following net cash flow items:
(1)$12.1 million provided by operating activities.
(2)$89.2 million provided by investing activities, consisting primarily of the following:
(a)$6.4 million received from proceeds from the sales of rental property; plus
(b)$1.9 million received from distributions in excess of cumulative earnings from unconsolidated joint ventures; plus
(c)$0.8 million received from repayment of notes receivable; minus
(d)$2.8 million used for additions to rental property, improvements and other costs; plus
(e)$2.9 million used for the development of rental property, other related costs and deposits; minus
(f)$2.9 million proceeds from insurance settlement.
(3)$91.9 million used in financing activities, consisting primarily of the following:
(a)$16.0 million used for repayments of revolving credit facility and term loan; plus
(b)$84.1 million used for repayments of mortgages, loans payable and other obligations; plus
(c)$6.4 million used for distribution to redeemable noncontrolling interests; plus
(d)$1.4 million used for payment of financing costs; minus
(e)$16.0 million from borrowings under the revolving credit facility.
Debt Financing
Summary of Debt
The following is a breakdown of the Company’s debt between fixed and variable-rate financing as of March 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Balance ($000’s) | | % of Total | | Weighted Average Interest Rate (a) | | | | Weighted Average
Maturity in Years |
| Fixed Rate & Hedged Secured (c) | | $ | 1,827,360 | | | 100.00 | % | | 4.32 | % | | | | 3.47 |
| | | | | | | | | | |
| | | | | | | | | | |
| Totals/Weighted Average: | | $ | 1,827,360 | | | 100.00 | % | | 4.32 | % | | (b) | | 3.47 |
| Unamortized deferred financing costs | | (6,862) | | | | | | | | | |
| Total Debt, Net | | $ | 1,820,498 | | | | | | | | | |
(a)The actual weighted average of floating rates (LIBOR and SOFR) for the Company’s outstanding variable rate debt was 4.62 percent as of March 31, 2023 plus the applicable spread.
(b)Excludes amortized deferred financing costs primarily pertaining to the Company’s revolving credit facility which amounted to $0.7 million for the three months ended March 31, 2023.
(c)Includes debt with interest rate caps outstanding with a notional amount of $548 million.
Debt Maturities
Scheduled principal payments and related weighted average annual effective interest rates for the Company’s debt as of March 31, 2023 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Scheduled Amortization ($000’s) | | Principal Maturities ($000’s) | | Total ($000’s) | | Weighted Avg.
Effective Interest Rate of
Future Repayments (a) | |
| 2023 | | $ | 1,919 | | | $ | 58,998 | | | $ | 60,917 | | | 3.58 | % | |
| 2024 (b) | | 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 | | | 335,023 | | | 342,441 | | | 3.98 | % | |
| Sub-total | | 39,696 | | | 1,787,664 | | | 1,827,360 | | | 4.32 | % | |
| Unamortized deferred financing costs | | (6,862) | | | — | | | (6,862) | | | | |
| Totals/Weighted Average | | $ | 32,834 | | | $ | 1,787,664 | | | $ | 1,820,498 | | | 4.32 | % | |
(a)The actual weighted average of floating rates (LIBOR and SOFR) for the Company’s outstanding variable rate debt was 4.62 percent as of March 31, 2023, plus the applicable spread.
(b)Excludes amortized deferred financing costs primarily pertaining to the Company’s revolving credit facility which amounted to $0.7 million for the three months ended March 31, 2023.
Revolving Credit Facility and Term Loans
On May 6, 2021, the Company entered into a revolving credit and term loan agreement (“2021 Credit Agreement”) with a group of seven lenders that provides for a $250 million senior secured revolving credit facility (the “2021 Credit Facility”) and a $150 million senior secured term loan facility (the “2021 Term Loan”), and delivered written notice to the administrative agents to terminate the 2017 credit agreement, which termination became effective May 13, 2021.
The terms of the 2021 Credit Facility include: (1) a three-year term ending in May 2024; (2) revolving credit loans may be made to the Company in an aggregate principal amount of up to $250 million (subject to increase as discussed below), with a sublimit under the 2021 Credit Facility for the issuance of letters of credit in an amount not to exceed $50 million; and (3) a first priority lien in unencumbered properties of the Company with an appraised value greater than or equal to $800 million which must include the Company’s Harborside 2/3 and Harborside 5 properties; and (4) a facility fee payable quarterly equal to 35 basis points if usage of the 2021 Credit Facility is less than or equal to 50%, and 25 basis points if usage of the 2021 Credit Facility is greater than 50%.
The terms of the 2021 Term Loan included: (1) an eighteen month term ending in November 2022; (2) a single draw of the term loan commitments up to an aggregate principal amount of $150 million; and (3) a first priority lien in unencumbered properties of the Company with an appraised value greater than or equal to $800 million which must include the Company’s Harborside 2/3 and Harborside 5 properties.
Interest on borrowings under the 2021 Credit Facility and 2021 Term Loan was based on applicable base rate (the “Base Rate”) plus a margin ranging from 125 basis points to 275 basis points depending on the Base Rate elected, currently 0.12%. The Base Rate shall be either (A) the highest of (i) the Wall Street Journal prime rate, (ii) the greater of the then effective (x) Federal Funds Effective Rate, or (y) Overnight Bank Funding Rate plus 50 basis points, and (iii) a LIBO Rate, as adjusted for statutory reserve requirements for eurocurrency liabilities (the “Adjusted LIBO Rate”) and calculated for a one-month interest period, plus 100 basis points (such highest amount being the “ABR Rate”), or (B) the Adjusted LIBO Rate for the applicable interest period; provided, however, that the ABR Rate shall not be less than 1% and the Adjusted LIBO Rate shall not be less than zero.
The 2021 Credit Agreement, which applies to both the 2021 Credit Facility and 2021 Term Loan, included certain restrictions and covenants which limited, among other things the incurrence of additional indebtedness, the incurrence of liens and the disposition of real estate properties, and which require compliance with financial ratios relating to the minimum collateral pool value ($800 million), maximum collateral pool leverage ratio (40 percent), minimum number of collateral pool properties (two), the maximum total leverage ratio (65 percent), the minimum debt service coverage ratio (1.10 times until May 6, 2022, 1.20 times from May 7, 2022 through May 6, 2023, and 1.40 times thereafter), and the minimum tangible net worth ratio (80% of tangible net worth as of December 31, 2020 plus 80% of net cash proceeds of equity issuances by the General Partner or the Operating Partnership).
In April 2023, the Company terminated the 2021 Credit Agreement and the 2021 Credit Facility.
Mortgages, Loans Payable and Other Obligations
The Company has other mortgages, loans payable and other obligations which consist of various loans collateralized by certain of the Company’s rental properties. Payments on mortgages, loans payable and other obligations are generally due in monthly installments of principal and interest, or interest only.
Debt Strategy
The Company intends to utilize a combination of corporate and property level indebtedness. The Company will seek to refinance or retire its debt obligations at maturity with either available proceeds received from the Company’s planned non-strategic asset sales, as well as with new corporate or property level indebtedness on or before the applicable maturity dates. If it cannot raise sufficient proceeds to retire the maturing debt, the Company may use cash on hand to repay the debt. The Company is continually evaluating its financing and refinancing options, including the issuance of additional, or exchange of current, unsecured debt or common and preferred stock, and/or obtaining additional mortgage debt of the Operating Partnership, some or all of which may be completed in 2023. The Company currently anticipates that its available cash and cash equivalents, cash flows from operating activities and proceeds from the sale of real estate assets and joint ventures investments, together with cash available from borrowings and other sources, will be adequate to meet the Company’s capital and liquidity needs in the short term. However, if these sources of funds are insufficient or unavailable, due to current economic conditions or otherwise, or if capital needs to fund acquisition and development opportunities in the multifamily rental sector arise, the Company’s ability to make the expected distributions discussed in “REIT Restrictions” above may be adversely affected.
Equity Financing and Registration Statements
Dividend Reinvestment and Stock Purchase Plan
The Company has a Dividend Reinvestment and Stock Purchase Plan (the “DRIP”) which commenced in March 1999 under which approximately 5.4 million shares of the General Partner’s common stock have been reserved for future issuance. The DRIP provides for automatic reinvestment of all or a portion of a participant’s dividends from the General Partner’s shares of common stock. The DRIP also permits participants to make optional cash investments up to $5,000 a month without restriction and, if the Company waives this limit, for additional amounts subject to certain restrictions and other conditions set forth in the DRIP prospectus filed as part of the Company’s effective registration statement on Form S-3 filed with the Securities and Exchange Commission (“SEC”) for the approximately 5.4 million shares of the General Partner’s common stock reserved for issuance under the DRIP.
Shelf Registration Statements
The General Partner has an effective shelf registration statement on Form S-3 filed with the SEC for an aggregate amount of $2.0 billion in common stock, preferred stock, depositary shares, and/or warrants of the General Partner, under which no securities have been sold as of April 24, 2023.
The General Partner and the Operating Partnership also have an effective shelf registration statement on Form S-3 filed with the SEC for an aggregate amount of $2.5 billion in common stock, preferred stock, depositary shares and guarantees of the General Partner and debt securities of the Operating Partnership, under which no securities have been sold as of April 24, 2023.
Off-Balance Sheet Arrangements
Unconsolidated Joint Venture Debt
The debt of the Company’s unconsolidated joint ventures generally provides for recourse to the Company for customary matters such as intentional misuse of funds, environmental conditions and material misrepresentations. The Company has agreed to guarantee repayment of a portion of the debt of its unconsolidated joint ventures. As of March 31, 2023, the outstanding balance of such debt totaled $18.2 million of which $2 million was guaranteed by the Company.
The Company’s off-balance sheet arrangements are further discussed in Note 4: Investments in Unconsolidated Joint Ventures to the Financial Statements.
Funds from Operations
Funds from operations (“FFO”) (available to common stock and unit holders) is defined as net income (loss) before noncontrolling interests in Operating Partnership, computed in accordance with GAAP, excluding gains or losses from depreciable rental property transactions (including both acquisitions and dispositions), and impairments related to depreciable rental property, plus real estate-related depreciation and amortization. The Company believes that FFO is helpful to investors as one of several measures of the performance of an equity REIT. The Company further believes that as FFO excludes the effect of depreciation, gains (or losses) from property transactions and impairments related to depreciable rental property (all of which are based on historical costs which may be of limited relevance in evaluating current performance), FFO can facilitate comparison of operating performance between equity REITs.
FFO should not be considered as an alternative to net income available to common shareholders as an indication of the Company’s performance or to cash flows as a measure of liquidity. FFO presented herein is not necessarily comparable to FFO presented by other real estate companies due to the fact that not all real estate companies use the same definition. However, the Company’s FFO is comparable to the FFO of real estate companies that use the current definition of the National Association of Real Estate Investment Trusts (“NAREIT”).
As the Company considers its primary earnings measure, net income available to common shareholders, as defined by GAAP, to be the most comparable earnings measure to FFO, the following table presents a reconciliation of net income
available to common shareholders to FFO, as calculated in accordance with NAREIT’s current definition, for the three months ended March 31, 2023 and 2022 (in thousands):
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | |
| | 2023 | | 2022 | | | | |
| Net loss available to common shareholders | | $ | (19,973) | | | $ | (9,092) | | | | | |
| Add (deduct): Noncontrolling interests in Operating Partnership | | (2,329) | | | (2,779) | | | | | |
| Noncontrolling interests in discontinued operations | | 293 | | | 1,881 | | | | | |
| Real estate-related depreciation and amortization on continuing operations (a) | | 26,217 | | | 18,663 | | | | | |
| Real estate-related depreciation and amortization on discontinued operations | | 4,727 | | | 7,525 | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Discontinued operations: Realized (gains) losses and unrealized (gains) losses on disposition of rental property, net | | (780) | | | (1,836) | | | | | |
| Funds from operations available to common stock and Operating Partnership unitholders (b) | | $ | 8,155 | | | $ | 14,362 | | | | | |
(a)Includes the Company’s share from unconsolidated joint ventures, and adjustments for noncontrolling interests, of $2.6 million and $2.7 million for the three months ended March 31, 2023 and 2022, respectively. Excludes non-real estate-related depreciation and amortization of $0.4 million and $0.3 million for the three months ended March 31, 2023 and 2022, respectively.
(b)Net loss available to common shareholders for the three months ended March 31, 2023 and 2022 included $3.4 million and $2.9 million, respectively, of land impairment charges and $22 thousand and $2.6 million, respectively, gains on disposition of developable land, which are included in the calculation to arrive at funds from operations as such gains relate to non-depreciable assets.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
We consider portions of this information, including the documents incorporated by reference, to be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of such act. Such forward-looking statements relate to, without limitation, our future economic performance, plans and objectives for future operations and projections of revenue and other financial items. Forward-looking statements can be identified by the use of words such as “may,” “will,” “plan,” “potential,” “projected,” “should,” “expect,” “anticipate,” “estimate,” “target,” “continue” or comparable terminology. Forward-looking statements are inherently subject to certain risks, trends and uncertainties, many of which we cannot predict with accuracy and some of which we might not even anticipate. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions at the time made, we can give no assurance that such expectations will be achieved. Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements.
Among the factors about which we have made assumptions are:
•risks and uncertainties affecting the general economic climate and conditions, which in turn may have a negative effect on the fundamentals of our business and the financial condition of our tenants and residents;
•the value of our real estate assets, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing secured by our properties or on an unsecured basis;
•the extent of any tenant bankruptcies or of any early lease terminations;
•our ability to lease or re-lease space at current or anticipated rents;
•changes in the supply of and demand for our properties;
•changes in interest rate levels and volatility in the securities markets;
•our ability to complete construction and development activities on time and within budget, including without limitation obtaining regulatory permits and the availability and cost of materials, labor and equipment;
•our ability to attract, hire and retain qualified personnel;
•forward-looking financial and operational information, including information relating to future development projects, potential acquisitions or dispositions, leasing activities, capitalization rates, and projected revenue and income;
•changes in operating costs;
•our ability to obtain adequate insurance, including coverage for natural disasters and terrorist acts;
•our credit worthiness and the availability of financing on attractive terms or at all, which may adversely impact our ability to pursue acquisition and development opportunities and refinance existing debt and our future interest expense;
•changes in governmental regulation, tax rates and similar matters; and
•other risks associated with the development and acquisition of properties, including risks that the development may not be completed on schedule, that the tenants or residents will not take occupancy or pay rent, or that development or operating costs may be greater than anticipated.
For further information on factors which could impact us and the statements contained herein, see Item 1A: Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022. We assume no obligation to update and supplement forward-looking statements that become untrue because of subsequent events, new information or otherwise.