Veris Residential - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered a clean beat: GAAP revenue of $75.93M vs S&P Global consensus $71.07M, and GAAP diluted EPS of $0.12 vs consensus -$0.10; Adjusted EBITDA of $42.20M exceeded consensus EBITDA of $36.80M. Guidance was raised across Core FFO and same-store NOI growth, with balance-sheet optimization lowering corporate borrowing spreads by 55 bps. S&P Global values noted below.*
• Same-store operating strength continued: blended net rental growth rose to 4.7% (vs 2.3% in Q1), same-store NOI increased 5.6% YoY, and NOI margin reached 67.5% (up ~200 bps YoY).
• Strategic plan execution accelerated: $268M of non-strategic sales closed YTD, $180M under contract; term loan fully repaid post-quarter, revolver amended to leverage-based pricing grid (SOFR+1.50% at closing).
• Raised 2025 Core FFO guidance to $0.63–$0.64 (from $0.61–$0.63), and higher same-store NOI growth range (2.0%–2.8%); operational improvements and debt reductions are primary drivers.
• Near-term stock catalysts: raised guidance, deleveraging trajectory (target ~10x net debt/EBITDA by YE25 and <9x by YE26) and continued asset sales at low-5% cap rates could drive estimate revisions and multiple relief.

What Went Well and What Went Wrong

What Went Well

• Strong operational KPIs: blended net rental growth 4.7% in Q2 (up from 2.3% in Q1); same-store NOI +5.6% YoY and NOI margin 67.5% in Q2.
• Balance sheet optimization: revolver amended to leverage-based grid (SOFR +1.50% at closing), 55 bps reduction in borrowing costs; term loan fully repaid post quarter, all debt hedged/fixed with 2.6-year WAM and 4.86% effective rate.
• Dispositions ahead of schedule: $268M closed plus $180M under contract, enabling deleveraging and interest savings; CEO emphasized “well ahead of schedule” and “on track” to net debt/EBITDA <9x next year.

Quotes:

• “We have made significant progress… enabling us to raise guidance… well ahead of schedule and on track to realize our near-term leverage targets” — CEO Mahbod Nia.
• “This amendment… secures an immediate reduction in our corporate borrowing costs of 55 basis points” — CEO.

What Went Wrong

• Liberty Towers renovation temporarily pressured occupancy; including Liberty Towers, portfolio occupancy was 93.9%; the asset was ~88% leased and >80% occupied in July, with completion stretching over ~3 years.
• Non-controllables expected to reset in H2: insurance and Jersey City taxes likely to lap last year’s favorable resolutions, weighing Q3 same-store growth per CFO.
• Net debt/EBITDA still elevated at 11.3x TTM as of Q2 (normalized), reflecting timing of transactions; trajectory improving with asset sales and facility amendment.

Transcript

Operator (participant)

Greetings and welcome to the Veris Residential Inc. Second Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. Should anyone require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Taryn Fiedler, General Counsel. Thank you. You may begin.

Taryn Fielder (General Counsel and Secretary)

Good morning, everyone, and welcome to Veris Residential's second quarter 2025 earnings conference call. I would like to remind everyone that certain information discussed on this call may constitute forward-looking statements within the meaning of the Federal Securities Law. Although we believe the estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved. We refer you to the company's press release and annual and quarterly reports filed with the SEC for risk factors that impact the company. With that, I would like to hand the call over to Mahbod Nia, Veris Residential's Chief Executive Officer, who is joined by Anna Malhari, Chief Operating Officer, and Amanda Lombard, Chief Financial Officer. Mahbod?

Mahbod Nia (CEO)

Thank you, Taryn, and good morning, everyone. I'll begin today's call by providing details on our quarterly results, yesterday's performance, and key dynamics of our markets. We'll turn to Anna to update you on our operating performance and Amanda to provide details on our financial performance and outlook. The second quarter marked another period of solid operational and financial results for Veris Residential, including $0.17 of core FFO and 5.6% same-store NOI growth. We also made significant progress with the corporate plan that we announced earlier this year, alongside continued enhancements to our operational platform and further optimization of our balance sheet, allowing us to meaningfully reduce our cost of debt.

Year to date, we've either completed or executed binding contracts for approximately $450 million of non-strategic asset sales, largely fulfilling our stated target of selling $300 to $500 million of non-strategic assets by the end of 2026, well ahead of schedule. We intend to utilize proceeds from these sales primarily to reduce leverage to around 10 times by year-end 2025 and are on track to further reduce this to below 9 times by year-end 2026. The rapid progress we've made in deleveraging our balance sheet is translating into tangible value creation for our shareholders, as we realize an immediate 55 basis point improvement in our borrowing costs through our amended credit facility, with potential for a further improvement in our borrowing costs as we continue to delever.

Our robust operational performance, combined with the significant progress we have made executing non-strategic asset sales, resulting in the reduction of debt, has enabled us to raise guidance on key metrics. We've now closed $268 million of the aforementioned $450 million of non-strategic asset sales, including the recent sales of Signature Place, a 197-unit property located in suburban New Jersey, for $85 million, and 145 Front Street, a 365 unit property located in Worcester, Massachusetts, for $122 million. These assets, generally smaller in size, were sold at an average cap rate of 5.1%, in line with what we believe to be their intrinsic value. We've also entered binding contracts for The James in suburban New Jersey and Quarry Place, our only asset in New York, posting an additional $180 million of sales, which are anticipated to close in the coming months.

As previously announced, during the second quarter, we consolidated our partners' 15% stake in Sable, formerly the Jersey City Irby, and have already begun to realize meaningful operational synergies through the integration of this asset into the Veris Residential platform. Before I hand over to Anna to walk through our operational performance, I'd like to say a few words regarding the current dynamics in our markets. The Northeast multifamily landscape continues to perform encouragingly well, driven by favorable supply-demand dynamics and resilient urban migration trends. New York City, to which Jersey City is highly correlated, remains one of the strongest markets nationwide, underpinned by a historically low vacancy of below 3% metro-wide, despite the delivery of approximately 15,000 new units over the past year. Demand has also remained strong in Boston, where vacancy has edged lower year over year and rent growth has remained above national levels.

New construction in Jersey City remains concentrated in Journal Square, a less established submarket which does not compete directly with the Jersey City Waterfront, where our assets are located. The Waterfront submarket maintains clear advantages: lower vacancy, approximately 25% higher asking rents, and almost three times the rental growth of Journal Square this year. The Jersey City Waterfront has successfully absorbed 3,900 units, with minimal impact to our occupancy rates over the past five years. In the next four years, around 3,000 units across four projects are currently under construction, with only 385 units delivered over the past three years, well below historical levels.

We expect the market to readily absorb the new supply in line with the historical absorption rate of approximately 630 units annually. These robust supply-demand dynamics leave our Waterfront portfolio well positioned to sustain strong rental growth going forward. With that, I'll hand it over to Anna to discuss our operational performance for the quarter.

Anna Malhari (COO)

Thank you, Mahbod. Our portfolio continued to deliver strong operating results in the second quarter. Excluding Liberty Towers, where we continued to undergo unit renovations, occupancy was 95.5% as of June 30, up from 94.7% a year ago. Including Liberty Towers, occupancy was 93.9%, while retention improved to approximately 60%. To date, we have renovated and leased 121 units at Liberty Towers, nearly 20% of the property, at a gross rental uplift of around 20%. Occupancy has picked up over the last few weeks, with the asset currently 88% leased and over 80% occupied. Rental growth has gradually increased as peak season progresses. Our portfolio achieved a blended net rental growth rate of 4.7% for the quarter, up from 2.3% in the first quarter and well above the national average of 1%. This is driven by renewals of 5.2% and new leases accelerating to 4%.

The blended net rental growth rate was 3.5% for the first half of 2025, comprising 2.5% in new leases and 4.3% in renewals. Simultaneously, rental income ratios across our portfolio have remained stable, highlighting the creditworthiness of our high-income resident base. This rental performance, coupled with our ongoing focus on expense management, is reflected in our same-store NOI growing by 5.6% in the quarter and our operating margin improving by approximately 200 basis points year over year to 67.5%. Our broader New Jersey portfolio continued to deliver strong results, supported by our asset's strategic locations adjacent to New York City, with approximately 25% of new move-ins coming from the area and over 50% from out of state. These residents are attracted to our compelling value proposition of generally newer, more spacious units and a more comprehensive suite of amenities.

Our portfolio's continued outperformance is a testament to the quality of our assets, the strength of our markets and platform, and the unwavering commitment and hard work of our teams. We continue to focus on further optimization of our operational platform, investing in and implementing innovative technologies balanced by human interaction to create an elevated customer experience. In June, we hosted an investor event showcasing PRISM, our approach to technology adoption that further empowers our teams and provides comprehensive support to every resident. During the presentation, which you can find on our website, our technology partners spoke to our outperformance, including our AI assistants achieving a lease conversion rate more than double that of our partners' other clients, and our website generating more than three times the virtual tours than other multifamily companies using the same tool.

During the quarter, we leveraged our existing virtual tours to launch our VR showroom in an incredibly cost-effective manner, allowing residents to tour select units at all of our properties in 3D, wearing their own VR glasses, with the plans to expand this immersive experience across all units this year. In addition to our Virtual Leasing Assistant, our website now features an embedded AI chatbot, which is designed to guide every prospect, resident, investor, and job seeker who visits our website. We've also developed our own proprietary revenue management tool, which is performing extremely well across the assets we're deploying, eliminating over $250,000 of annualized costs associated with utilizing third-party revenue management tools and potentially more over time.

Overall, our strong operational performance reflects the effectiveness of our platform investments, the quality of our assets, and the strength of our markets, positioning us well to continue momentum as we move forward. With that, I'm going to hand it over to Amanda, who will discuss our financial performance and provide an update on guidance.

Amanda Lombard (CFO)

Thank you, Anna. For the second quarter of 2025, net income available to common shareholders was $0.12 per fully diluted share versus $0.03 for the prior year and a net loss of $0.12 in the first quarter. Core FFO per share was $0.17 for the second quarter, up $0.01 from the first quarter due to several factors, including the transactions closed in the period, the timing of the annual Sable tax credit, and continued strong performance from our portfolio. Core FFO per share for the second quarter also includes approximately $0.01 of non-recurring other income and property management expense savings. Year to date, core FFO is $0.33 per share versus $0.32 last year. As mentioned earlier, same-store NOI growth for the quarter was 5.6%. On a year-to-date basis, same-store NOI growth is 4.4%.

Same-store rental revenue was up 2.5% for the quarter, driven by an increase in occupancy across the majority of our portfolio and continued rental revenue growth. Excluding Liberty Towers and other income recognized last year, rental revenue growth would have been 3.8%. Year to date, rental revenue growth was 2.4%, driven by growth in market rates, occupancy, higher amenity fees, and retail lease-ups, offset by the same components as the quarter to date: the reduction in Liberty Towers' occupancy due to renovations and the benefit of other income recognized last year. On the expense side, our technology investments and enhancements and portfolio optimization initiatives continue to drive savings. Both controllable and non-controllable expenses were down from prior year. Controllable expenses decreased by 3.7% year-over-year and are essentially flat year to date.

This benefit is driven primarily by lower marketing and administrative costs due to increased demand for our Waterfront asset and a reduction in repairs and maintenance expenses at Liberty Towers, given little to no make-ready costs are incurred while units undergo renovation. Year to date, these savings in marketing, administration, and repairs and maintenance were partially offset by higher utility costs due to cold weather in the first quarter. Additionally, payroll costs are virtually flat as technology and centralization initiatives are rolled out across the portfolio. Non-controllable expenses, which will reset in the third quarter, are down 3.2% year over year, 2.6% year to date due to lower insurance costs and real estate tax expenses. On the overhead front, core G&A, after adjustments for severance payments, was $8.2 million, a significant improvement from last quarter as expected due to seasonal increases in non-cash stock compensation in the first quarter.

We also recognize savings of approximately $500,000 this quarter in property management expenses related to our employee benefits. Turning to our balance sheet, a key focus area of our 2025 strategic initiative. Given our progress in monetizing low-yielding land and select non-strategic multifamily assets, with the aim of improving our leverage and cost of debt capital, in early July, we modified our revolving credit facility and term loan. With this amendment, we reduced our borrowing spread and introduced a leverage grid to allow for continual improvement in our borrowing costs as we further reduce leverage. The initial spread is 150 basis points over SOFR, down from 205 basis points, with the ability to step down to 120 basis points should we reduce corporate leverage below 40%.

This amendment represents another important step in the company's balance sheet evolution, tangibly improving our cost of capital, flexibility, and optionality, and demonstrating continued support from our lenders. Net debt to EBITDA on a trailing 12-month basis was 11.3 times, which does not reflect the impact of assets closed and under contract after June 30, 2024. With these sales, we remain on track to reduce net debt to EBITDA to around 10 times by year-end 2025. After factoring in the impact of the recent transactions closed in July, we had $126 million outstanding on the revolver. Our $200 million term loan has been fully repaid, and liquidity has increased to $181 million, which includes the available balance of the revolver.

As a result, all of our debt was fixed or hedged, with a weighted average maturity of 2.6 years and a weighted average effective interest rate of 4.86%, a reduction of over 20 basis points prior to the amendment. Importantly, with the recently closed and announced sales and the new facility, the company will have sufficient liquidity to refinance all of its wholly owned 2026 maturities with proceeds from completed sales and/or availability on its revolving credit facility. Turning to guidance, we are raising our core FFO guidance range to $0.63 to $0.64, from $0.61 to $0.63 per share. This change reflects the robust performance of our portfolio to date, including strong blended leasing spreads of 3.5% year to date, recent sales and resulting debt repayment, the acquisition of the controlling interest in Sable, and the amended credit facility.

Our revised range represents core FFO growth of 5% to 6.7% compared to 2024, not only leading our multifamily peers but also outperforming most REITs across sectors and asset classes. We are also raising our same-store NOI guidance to between 2% and 2.8%, reflecting our solid performance year to date, visibility into continued market rent growth through the end of the peak leasing season, and realized savings from our technology and operational initiatives. As a reminder, in the third quarter, we will lap significantly positive insurance and tax resolutions from last year, which will impact our same-store growth rate. We still anticipate G&A will be flat relative to last year, with the third quarter mostly in line with the second quarter and an uptick in the fourth quarter for activities that occur at that time.

Our interest expense guidance assumes the sales under binding contracts are completed by the end of the third quarter and utilized to repay debt. This concludes a strong second quarter for Veris Residential, highlighting our sustained momentum in achieving our strategic milestones, including accelerated earnings growth and an earlier-than-projected reduction in corporate leverage. With that, operator, please open the line for questions.

Operator (participant)

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. The first question is from Steve Sakwa from Evercore ISI. Please go ahead.

Steve Sakwa (Senior Managing Director and Senior Equity Research Analyst)

Yes, thanks. Good morning. Mahbod, maybe if you could first talk about the board change and the departure of the CIO, maybe just help us think through the CIO and what that means for dispositions moving forward, and then any comments on the board change.

Mahbod Nia (CEO)

Sure. Good morning, Steve, and thank you for the question. With regard to our CIO, that's a decision that we made to make that change. We'd like to thank Jeff for his contribution that he's made over the last two, three years. We have a team, an investment team headed by Brian Primus, who's been with the company for 19, almost 20 years and has actually been very much leading many of the executions on the office land and even multifamily side, certainly during my tenure. We're in good hands with Brian and the investment team and well positioned to continue executing on our plan. As you've seen, even during this past quarter, we really made some significant strides in moving that forward. As for Ron, I'd also like to thank Ron for his valuable contribution over the past two years.

He's been a tremendous board member and supporter of the company, been a shareholder for a long time. I think his decision was based on his recognition of his fiduciary obligations to various shareholders and balancing those with his position at Madison and their need for greater flexibility to trade various shares in accordance with their fiduciary obligations to their investors. Ron continues to be highly supportive of us and the company's strategy, and we look forward to maintaining a regular dialogue with him and Madison as one of our larger shareholders going forward.

Steve Sakwa (Senior Managing Director and Senior Equity Research Analyst)

Okay, thanks. Amanda, I know you sort of commented about some of the tough comps that you've got coming up in the back half. I think taxes and insurance were both down last year. Is there anything that you can share with us on kind of what's embedded in guidance for the back half of the year? When do you sort of get more visibility on, I guess, both of those figures for the back half of the year?

Amanda Lombard (CFO)

Yes, sure. Good morning, Steve. As you noted, we do have our non-controllables renewing in the second quarter. For insurance, we did assume that we would have a mid to high single-digits renewal. I know that there is more capacity in the market this year. We also have our real estate taxes resetting in the third quarter, in particular, Jersey City, which is a large portion of our portfolio. The real estate taxes in Jersey City have been volatile in the prior years. To put that into context, a 10% change in insurance premiums would be offset by just a 4% increase in Jersey City taxes. Overall, that's how we're thinking about it, and that's how it's been factored into our guidance.

Steve Sakwa (Senior Managing Director and Senior Equity Research Analyst)

Okay, thanks. Just last question, Mahbod, you've been pretty successful executing on the dispositions, I think, faster than most people maybe expected. I guess where is your head as you kind of hit towards the upper end of the range with the couple that are pending? How are you sort of thinking about future sales over the balance of this year and into 2026?

Mahbod Nia (CEO)

I think it's a good question. I think I'd firstly say that the team's done a phenomenal job to bring us this far at this pace at these valuations, but it's an extremely challenging transaction market and difficult to predict. It looks like it's all, you know, very smooth on the surface, but behind the scenes, there are challenges to every transaction. Often there's a chain. If buyers have issues with their transactions, with their sales of assets, that has the potential to impact us. It's very difficult to make calls on the extent and pace of progress that one can make. Having said that, this shows a clear desire by the board and management to recognize, to realize NAV where we can, and that tends to be on smaller assets and crystallize those values on behalf of our shareholders.

Having achieved what we've achieved so far, there's still $134 million of land that we referenced that we may want to, to the extent we can, rationalize further from here. Potentially less than a handful, but, you know, one or two more other small assets as well, that to the extent that we can realize fair value at or close to intrinsic value for those assets, we may make some further progress. To the extent that we can do that, then that allows us to go further in terms of our ability to continue reducing leverage and further strengthening the balance sheet, accreting earnings, especially from land to the extent we can recycle and reallocate that equity, and continue to focus on things that are within our control, at least, to try to close the discount to NAV.

Steve Sakwa (Senior Managing Director and Senior Equity Research Analyst)

Okay, thanks. That's it for me.

Mahbod Nia (CEO)

Thank you, Steve.

Operator (participant)

The next question is from Eric Wolfe from Citi. Please go ahead.

Eric Wolfe (Director)

Hey, thanks. Just wanted to follow up on your answer there a moment ago. If you look at the properties that you sold, it looks like they're around about $100 million in value on average. Should we take that as an early indication that the market for larger buildings is thawing a bit, or is there a certain size or type of asset where it becomes more difficult to sell them?

Mahbod Nia (CEO)

Good morning, Eric. Yeah, look, there's definitely a discount for size today. That's a given. I wouldn't say that's developed in the last quarter. That's been the case for a while now, but there's definitely a discount for size. I wouldn't say there's a firm cutoff, but certainly smaller transactions, you do have a greater chance of being able to access a different buyer pool with a different cost of capital or investment horizon or both. That typically would translate into a value that's more consistent with what we think of as intrinsic value. I wouldn't say there's a firm cutoff, but look, anything over large today is not really that large.

Anything over a couple hundred million dollars, the buyer pool starts to really tail off pretty quickly, and you can find yourself often with more value-add opportunistic type capital, and with that cost of capital, that translates into a different price.

Eric Wolfe (Director)

Makes sense. I guess I was trying to understand the sort of the number of properties, the value of properties that sort of fall into that hard-to-sell category. I guess just looking at your setup, it seems like it's maybe House 25, Sable, Liberty Towers that sort of fall into that category of a couple hundred million. I didn't know if there's anything else that would be falling into that.

Mahbod Nia (CEO)

Yeah, potentially Boulevard would be another one. You are, I think I said a minute ago, but we don't have too many more assets that I would say would be regarded as bite-size in today's market. Having said that, we've got $134 million of land, and we do have a few more assets, and that's certainly between those. There's enough there to continue with this momentum that we've built, deleveraging and accreting earnings.

Eric Wolfe (Director)

Right. Just the last question for me. You said that there were some struggles in the background. You probably can't talk about the ones that haven't closed yet, but was just curious for the ones that did, the two properties, what those struggles were, what needed to be overcome before those could transact. Second, if you just had a view on where you sold those properties relative to replacement cost, if buyers are demanding a discount to replacement cost today, given higher debt costs and return hurdles, or if there's an opportunity to actually sell around replacement cost.

Mahbod Nia (CEO)

Yeah, it's a good question. Relative to replacement cost, I would say those represented something of a discount, not a huge discount, but something of a discount to replacement cost. Relative to what we deem to be a sort of near-term strong valuation for those properties in this market, I think we've got very strong prices. I think you can see that in the cap rate, which is a low 5% cap rate that we achieved for those assets.

Eric Wolfe (Director)

Thank you.

Mahbod Nia (CEO)

Thank you.

Operator (participant)

The next question is from Anthony Paolone from JPMorgan. Please go ahead.

Anthony Paolone (Executive Director)

Yeah, thanks. Good morning. First question's on next year's debt maturities. Just wondering what your early thoughts are in terms of how you address those with either disposition proceeds or refinancing, and also just balancing the desire to reduce leverage versus maybe the buyback.

Amanda Lombard (CFO)

Hi, good morning, Tony. Next year, we do have about $500 million of debt maturing, and I break it up into two buckets. About half of that is related to mortgages, which are on wholly owned assets. For those mortgages, between the sales that we've announced already, as well as the capacity on the revolver, we believe we'll have the capacity to repay all of those through those needs. I'd also just call out within that bucket, we do have one mortgage on Portside One, which is our most expensive mortgage, and you could actually potentially see us pay that off sooner than its maturity next year. The other half of the mortgages are all on assets that are held in joint venture, some of them consolidated, some of them unconsolidated. Each one of those is going to require its own asset-level financing solution.

As you know, and as we've talked about previously, there's a lot of demand to provide capital and mortgages for our quality of assets. We do feel that we'll have a number of options there, and we'll work with our joint venture partners to figure out the solutions there. Overall, we feel comfortable with the refinancing options there.

Mahbod Nia (CEO)

Yeah, I think just to add to that, if you just take the asset class, but then specifically the asset quality that we have, the markets that we're in, and then the progress that we've made operationally and in terms of addressing our balance sheet, I think that's put us in really good stead to be able to manage through those refinancings as we move forward, as we have done this year and in prior years. I think we're in a good spot, and I think we've created many options for ourselves going forward as a result of the great work the team's done to be able to strengthen the balance sheet. You can also see that in the terms of the latest amended credit facility, which I think are very different to what they were a few years ago and really reflective of the company today.

Anthony Paolone (Executive Director)

Got it. The success you've had in just hitting your disposition goals already, and then you mentioned the land and maybe some smaller assets, is it still the priority, though, to reduce debt further, or would you consider the buyback here?

Mahbod Nia (CEO)

Yeah, it's a good question. We have the buyback. We have an authorized program. It's a tool that's available to us. If you run the math, I'd say there's limited potential for accretion from that, but it's still accretion, so it's valuable to have. I think what we've been clear about from the outset is that leverage reduction is the priority. While the buyback would allow you to take advantage of the discount to NAV that we're trading at and create some accretion, that discount in itself, we believe, is somewhat driven by the leverage profile, which is significantly better than it has been historically and on a trend now to really get within an expected range for a public company like us.

In addressing that leverage and continuing to delever the balance sheet, our hope and expectation is that we can close that gap, and that would be in the best interest of our shareholders. It's absolutely a priority to delever over anything else at this time.

Anthony Paolone (Executive Director)

Okay, got it. My other question just relates to your rent to income. This is always something that stands out to us. It's now below 11%, and it's almost half of where the multifamily peer group sits. Can you maybe, I know there's a market, but can you maybe talk about just where you think that should be over time or maybe the nature of your resident base that just allows it to be so low? It just seems like it would afford you all pretty substantial pricing power relative to, you know, say, across the water in New York City.

Mahbod Nia (CEO)

You have to bear in mind 25% or so of our move-ins are from Manhattan. Many of our residents also work in Manhattan and have Manhattan salaries. Around just under 10% of our residents have seven-figure incomes, and the average household income is over $400,000. I think that figure is really reflective of the tenant profile and credit worthiness, if you like, of our residents and the income that underpins our properties. I read into that as it's very resilient cash flow and allows us to be able to continue increasing rents in a supply-constrained market. I don't think it's a license to go out and push rent increases, renewals that are egregious, for want of a better word. At the end of the day, we're in a market that is still competitive.

We have our own internal pricing model that takes into consideration a wide number of factors in determining pricing, and you can see that that's still translating into very healthy rent growth relative to the country as an average. I see the affordability ratio more as just an indication of the resilience of the underlying cash flows.

Anthony Paolone (Executive Director)

Got it. Thank you.

Mahbod Nia (CEO)

Thanks.

Operator (participant)

The next question is from Jana Galan from Bank of America. Please go ahead.

Jana Galan (Director)

Thank you. Good morning and congrats on a strong second quarter.

Mahbod Nia (CEO)

Thank you.

Jana Galan (Director)

I was wondering if you could share any thoughts on the mayoral election in New York City and how potentially less development in New York City can increase rents and values in Jersey City.

Mahbod Nia (CEO)

Good morning. Thank you for the question. It's an interesting one. I think it's a little bit too soon to draw any definitive conclusions, but certainly based on some of the policies that have been mentioned, it is very possible, as you say, that Jersey City and particularly the Waterfront, given its proximity to Manhattan, could be a real beneficiary of some of those policies, both in terms of what you just described, but also the mention of potentially higher taxation on corporations and high earners who are now a meaningful portion of our resident base and could become an even more meaningful portion of our resident base to the extent that they face greater taxes across the river. There are already benefits to living here and working across the river, and one of them is that you don't pay New York City tax.

If you think about the high earners in our portfolio and what that translates into, you know, 4% of seven figures, and actually the average is a couple of million dollars, is meaningful. It's a meaningful contribution towards the rent over here, which is then 30% cheaper than prime rents across the river. To the extent those policies come in, it could very well be that we're a beneficiary, but I think it's a little bit too soon to draw any conclusions, as I said.

Jana Galan (Director)

Thank you. I'm sorry if I missed it, but can you share the blended rent spreads for July so far?

Mahbod Nia (CEO)

For July, we're mid-single digit.

Anna Malhari (COO)

You mean post-quarter, Jana, just to clarify?

Jana Galan (Director)

Yes.

Mahbod Nia (CEO)

Oh, I apologize.

Anna Malhari (COO)

Yeah, as you've seen, we've seen acceleration in the second quarter as we've entered the busy leasing season, and the portfolio continues to do really well. It's really only been three weeks, so we don't want to draw any conclusions about where new leases are. In terms of renewal, we still continue to send out renewals around the mid-single digits, as Mahbod just mentioned.

Mahbod Nia (CEO)

Apologies, I think your question was where we're sending out renewals.

Jana Galan (Director)

Thank you.

Operator (participant)

The next question is from John Pawlowski from Green Street Advisors. Please go ahead.

John Pawlowski (Managing Director)

Hey, thanks for the time. I want to follow up on the disposition commentary on the land. Do you still expect to sell the bulk of the remaining $130 million or so on the land in the near term, or would you, at this point, given the challenging construction market and land market, expect to hold on to it for the foreseeable future?

Mahbod Nia (CEO)

Good morning. It's a good question. I go back to my comments about it being a difficult transaction market. It's certainly a difficult transaction market for land as well, as you correctly pointed out. I think our approach historically has been to be pragmatic about these things, but also measured in our approach. What I mean by that is we recognize the importance of recycling capital, and you've seen us do this with office, recycling capital and the potential to create entity value through that process. We're looking at a wide range of options. We're not going to be fire-selling anything, but we would like to make some more progress. I wouldn't say all of that land is sellable near term, but if you look at the composition, there's a significant chunk of concentration, and that is very desirable and in any normal market would be very liquid.

John Pawlowski (Managing Director)

Okay, that helps. Last question for me is just on the trajectory of occupancy for Liberty Towers. It's been volatile, and it's stepped down and declined a little bit more than we expected this quarter, but it sounds like it's off up into the right at least the next few months. Could you just help frame, you know, should we expect it to bounce around, hover around the high 70%, low 80% for the next several quarters as you take units offline? Is this, was this the bottom and it's again on a more of a clear upward path from occupancy from here?

Anna Malhari (COO)

Thank you for the question. I think that it can bounce around a bit as we're introducing new units to the asset, but we have seen strong momentum in the summer season, both on the new leases, and have also secured a corporate lease for 18 units that helped drive up the lease percentage, as you've seen in my remarks for July. There may be some volatility, but we would hope to be in the low 80% going forward.

John Pawlowski (Managing Director)

Okay. Can you remind me when exactly you expect the project to be fully complete?

Anna Malhari (COO)

It's going to be over three years. We've done 120 units year to date that are renovated and are leased. That's around 20% of the building. We're actually pre-leasing some units that we know are scheduled to be delivered in the upcoming weeks to the extent the prospects want to move in in a few weeks or so. Just given the size of the building, it will take around three years to complete a full project.

John Pawlowski (Managing Director)

Three years from today, mid-2028, stabilized?

Amanda Lombard (CFO)

Yeah, I think they're about, could be end of 2027, but we may as well slip into 2028. It's too early to say. We're still on the 20% through the building.

John Pawlowski (Managing Director)

Okay, thank you.

Mahbod Nia (CEO)

Thank you.

Operator (participant)

There are no further questions at this time. I would like to turn the floor back over to Mahbod Nia for closing comments.

Mahbod Nia (CEO)

Thank you everyone for joining us today. We're pleased to report another strong quarter, both strategically and operationally, and look forward to updating you again next quarter.

Operator (participant)

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.