Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-13274 Veris Residential, Inc.
Commission File Number: 333-57103 Veris Residential, L.P.
Veris Residential, Inc.
Veris Residential, L.P.
(Exact name of registrant as specified in its charter)
Maryland (Veris Residential, Inc.)
22-3305147 (Veris Residential, Inc.)
Delaware (Veris Residential, L.P.)
22-3315804 (Veris Residential, L.P.)
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
Harborside 3, 210 Hudson St., Ste. 400, Jersey City, New Jersey
07311
(Address of principal executive offices)
(Zip Code)
(732) 590-1010
(Registrant’s telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:Veris Residential, Inc.:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
VRE
New York Stock Exchange
Veris Residential, L.P.:None
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety (90) days.
YES NO
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Veris Residential, Inc.:
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging Growth Company
Veris Residential, L.P.:
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Veris Residential, Inc.
Veris Residential, L.P.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES NO
As of May 2, 2022, there were 91,030,726 shares of Veris Residential, Inc.’s Common Stock, par value $0.01 per share, outstanding.
Veris Residential, L.P. does not have any class of common equity that is registered pursuant to Section 12 of the Exchange Act.
EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the period ended March 31, 2022 of Veris Residential, Inc. and Veris Residential, L.P. Unless stated otherwise or the context otherwise requires, references to the “Operating Partnership” mean Veris Residential, L.P., a Delaware limited partnership, and references to the “General Partner” mean Veris Residential, Inc., a Maryland corporation and real estate investment trust (“REIT”), and its subsidiaries, including the Operating Partnership. References to the “Company,” “we,” “us” and “our” mean collectively the General Partner, the Operating Partnership and those entities/subsidiaries consolidated by the General Partner.
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. The General Partner is the sole general partner of the Operating Partnership and has exclusive control of the Operating Partnership’s day-to-day management.
As of March 31, 2022, the General Partner owned an approximate 91.0 percent common unit interest in the Operating Partnership. The remaining approximate 9.0 percent common unit interest is owned by limited partners. The limited partners of the Operating Partnership are (1) persons who contributed their interests in properties to the Operating Partnership in exchange for common units (each, a “Common Unit”) or preferred units of limited partnership interest in the Operating Partnership or (2) recipients of long term incentive plan units of the Operating Partnership pursuant to the General Partner’s executive compensation plans.
A Common Unit of the Operating Partnership and a share of common stock of the General Partner (the “Common Stock”) have substantially the same economic characteristics in as much as they effectively share equally in the net income or loss of the Company. The General Partner owns a number of common units of the Operating Partnership equal to the number of issued and outstanding shares of the General Partner’s common stock. Common unitholders (other than the General Partner) have the right to redeem their Common Units, subject to certain restrictions under the Second Amended and Restated Agreement of Limited Partnership of the Operating Partnership, as amended (the “Partnership Agreement”) and agreed upon at the time of issuance of the units that may restrict such right for a period of time, generally one year from issuance. The redemption is required to be satisfied in shares of Common Stock of the General Partner, 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 of the General Partner, cash, or any combination thereof). If the General Partner elects to satisfy the redemption with shares of Common Stock of the General Partner as opposed to cash, the General Partner 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 Company or the General Partner under any circumstances. With each such redemption, the General Partner’s percentage ownership in the Operating Partnership will increase. In addition, whenever the General Partner issues shares of its Common Stock other than to acquire Common Units, the General Partner must contribute any net proceeds it receives to the Operating Partnership and the Operating Partnership must issue to the General Partner an equivalent number of Common Units. This structure is commonly referred to as an umbrella partnership REIT, or UPREIT.
The Company believes that combining the quarterly reports on Form 10-Q of the General Partner and the Operating Partnership into this single report provides the following benefits:
The Company believes it is important to understand the few differences between the General Partner and the Operating Partnership in the context of how they operate as a consolidated company. The financial results of the Operating Partnership are consolidated into the financial statements of the General Partner. The General Partner does not have any significant assets, liabilities or operations, other than its interests in the Operating Partnership, nor does the Operating Partnership have employees of its own. The Operating Partnership, not the General Partner, generally executes all significant business relationships other than transactions involving the securities of the General Partner. The Operating Partnership holds substantially all of the assets of the General Partner, including ownership interests in joint ventures. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for the net proceeds from equity offerings by the General Partner, which are contributed to the capital of the Operating Partnership in consideration of common or preferred units in the Operating Partnership, as applicable, the Operating
Partnership generates all remaining capital required by the Company’s business. These sources include working capital, net cash provided by operating activities, borrowings under the Company’s revolving credit facility, the issuance of secured and unsecured debt and equity securities, and proceeds received from the disposition of properties and joint ventures.
Shareholders’ equity, partners’ capital and noncontrolling interests are the main areas of difference between the consolidated financial statements of the General Partner and the Operating Partnership. The limited partners of the Operating Partnership are accounted for as partners’ capital in the Operating Partnership’s financial statements as is the General Partner’s interest in the Operating Partnership. The noncontrolling interests in the Operating Partnership’s financial statements comprise the interests of unaffiliated partners in various consolidated partnerships and development joint venture partners. The noncontrolling interests in the General Partner’s financial statements are the same noncontrolling interests at the Operating Partnership’s level and include limited partners of the Operating Partnership. The differences between shareholders’ equity and partners’ capital result from differences in the equity issued at the General Partner and Operating Partnership levels.
To help investors better understand the key differences between the General Partner and the Operating Partnership, certain information for the General Partner and the Operating Partnership in this report has been separated, as set forth below:
This report also includes separate Part I, Item 4. Controls and Procedures sections and separate Exhibits 31 and 32 certifications for each of the General Partner and the Operating Partnership in order to establish that the requisite certifications have been made and that the General Partner and Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350.
VERIS RESIDENTIAL, INC.
VERIS RESIDENTIAL, L.P.
INDEX
Page
Part I
Financial Information
Item 1.
Financial Statements (unaudited):
Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021
6
Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021
7
Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2022 and 2021
8
Consolidated Statements of Changes in Equity for the three months ended March 31, 2022 and 2021
9
Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021
10
11
12
13
14
15
Veris Residential, Inc. and Veris Residential, L.P.
Notes to Consolidated Financial Statements
16
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
43
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
52
Item 4.
Controls and Procedures
53
Part II
Other Information
Legal Proceedings
54
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Item 6.
Exhibits
Exhibit Index
55
Signatures
56
Part I – Financial Information
Item 1. Financial Statements
The accompanying unaudited consolidated balance sheets, statements of operations, of comprehensive income, 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, 2021.
The results of operations for the three-month period ended March 31, 2022 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)
March 31,
December 31,
ASSETS
2022
2021
Rental property
Land and leasehold interests
$
494,935
Buildings and improvements
3,404,452
3,375,266
Tenant improvements
108,173
106,654
Furniture, fixtures and equipment
101,690
100,011
4,109,250
4,076,866
Less – accumulated depreciation and amortization
(606,625)
(583,416)
3,502,625
3,493,450
Real estate held for sale, net
412,058
618,646
Net investment in rental property
3,914,683
4,112,096
Cash and cash equivalents
26,138
31,754
Restricted cash
21,153
19,701
Investments in unconsolidated joint ventures
135,116
137,772
Unbilled rents receivable, net
53,161
72,285
Deferred charges and other assets, net
107,341
151,347
Accounts receivable
2,233
2,363
Total assets
4,259,825
4,527,318
LIABILITIES AND EQUITY
Revolving credit facility and term loans
78,000
148,000
Mortgages, loans payable and other obligations, net
2,108,943
2,241,070
Dividends and distributions payable
132
384
Accounts payable, accrued expenses and other liabilities
89,980
134,977
Rents received in advance and security deposits
24,275
26,396
Accrued interest payable
5,182
5,760
Total liabilities
2,306,512
2,556,587
Commitments and contingencies
Redeemable noncontrolling interests
512,512
521,313
Equity:
Veris Residential, Inc. stockholders’ equity:
Common stock, $0.01 par value, 190,000,000 shares authorized,
90,955,759 and 90,948,008 shares outstanding
909
Additional paid-in capital
2,531,188
2,530,383
Dividends in excess of net earnings
(1,258,411)
(1,249,319)
Accumulated other comprehensive income (loss)
1,995
Total Veris Residential, Inc. stockholders’ equity
1,275,681
1,281,982
Noncontrolling interests in subsidiaries:
Operating Partnership
125,700
127,053
Consolidated joint ventures
39,420
40,383
Total noncontrolling interests in subsidiaries
165,120
167,436
Total equity
1,440,801
1,449,418
Total liabilities and equity
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited)
Three Months Ended
REVENUES
Revenue from leases
65,808
65,771
Real estate services
910
2,527
Parking income
4,177
3,086
Hotel income
1,417
1,053
Other income
26,787
3,656
Total revenues
99,099
76,093
EXPENSES
Real estate taxes
12,694
11,831
Utilities
3,933
4,092
Operating services
18,531
15,450
Real estate services expenses
3,318
General and administrative
19,475
13,989
Depreciation and amortization
26,514
28,173
Land and other impairments, net
2,932
413
Total expenses
86,442
77,266
OTHER (EXPENSE) INCOME
Interest expense
(15,025)
(17,610)
Interest and other investment income (loss)
158
17
Equity in earnings (loss) of unconsolidated joint ventures
(487)
(1,456)
Realized gains (losses) and unrealized gains (losses) on disposition of
rental property, net
1,836
-
Gain on disposition of developable land
2,623
Gain (loss) from extinguishment of debt, net
(6,289)
Total other income (expense)
(17,184)
(19,049)
Income (loss) from continuing operations
(4,527)
(20,222)
Discontinued operations:
Income from discontinued operations
10,962
Realized gains (losses) and unrealized gains (losses) on
disposition of rental property and impairments, net
22,781
Total discontinued operations, net
33,743
Net income (loss)
13,521
Noncontrolling interests in consolidated joint ventures
974
1,335
Noncontrolling interests in Operating Partnership of income from
continuing operations
898
2,305
Noncontrolling interests in Operating Partnership in discontinued operations
(3,067)
(6,437)
(6,471)
Net income (loss) available to common shareholders
(9,092)
7,623
Basic earnings per common share:
(0.13)
(0.28)
Discontinued operations
0.34
0.06
Diluted earnings per common share:
Basic weighted average shares outstanding
90,951
90,692
Diluted weighted average shares outstanding
99,934
99,760
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) (unaudited)
Other comprehensive income (loss):
Net unrealized gain (loss) on derivative instruments
for interest rate swaps
2,182
Comprehensive (income) loss
(2,345)
Comprehensive (income) loss attributable to noncontrolling
interests in consolidated joint ventures
Comprehensive (income) loss attributable to redeemable
noncontrolling interests
interests in Operating Partnership
702
762
Comprehensive income (loss) attributable to common shareholders
(7,106)
9,147
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (in thousands) (unaudited)
Accumulated
Additional
Dividends in
Other
Noncontrolling
Common Stock
Paid-In
Excess of
Comprehensive
Interests
For the Three Months Ended March 31, 2022
Shares
Par Value
Capital
Net Earnings
Income (Loss)
in Subsidiaries
Total Equity
Balance at January 1, 2022
90,948
4,565
Common stock dividends
Common unit distributions
218
(2,942)
(6,728)
(9,670)
Change in noncontrolling interests in consolidated joint ventures
Redemption of common units
(1,442)
Shares issued under Dividend Reinvestment and
Stock Purchase Plan
1
Directors' deferred compensation plan
110
Stock compensation
1,957
2,533
4,490
Cancellation of restricted stock
Other comprehensive income
1,986
196
Rebalancing of ownership percentage
between parent and subsidiaries
1,669
(1,669)
Balance at March 31, 2022
90,956
For the Three Months Ended March 31, 2021
Balance at January 1, 2021
90,712
907
2,528,187
(1,130,277)
193,563
1,592,380
5,898
4
(1,791)
(6,650)
(8,441)
(10,459)
18
72
646
1,883
2,529
Cancellation of common stock
(118)
1,556
(1,556)
Balance at March 31, 2021
90,729
2,528,570
(1,122,654)
182,693
1,589,516
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) from discontinued operations
(33,743)
Net income (loss) from continuing operations
Adjustments to reconcile net income (loss) to net cash provided by
Operating activities:
Depreciation and amortization, including related intangible assets
26,429
27,111
Amortization of directors deferred compensation stock units
Amortization of stock compensation
Amortization of deferred financing costs
1,177
Amortization of debt discount and mark-to-market
167
Equity in (earnings) loss of unconsolidated joint ventures
487
1,456
Distributions of cumulative earnings from unconsolidated joint ventures
114
Realized (gains) losses and unrealized (gains) losses on disposition of rental property, net
(1,836)
(Gain) on disposition of developable land
(2,623)
(Gain) Loss from extinguishment of debt
6,289
Changes in operating assets and liabilities:
Decrease (increase) in unbilled rents receivable, net
4,341
(964)
(Increase) decrease in deferred charges and other assets
(5,776)
1,719
Decrease in accounts receivable, net
118
1,859
Increase (decrease) in accounts payable, accrued expenses and other liabilities
3,260
(3,760)
(Decrease) increase in rents received in advance and security deposits
(2,114)
296
(Decrease) increase in accrued interest payable
(578)
5,738
Net cash flows provided by operating activities - continuing operations
32,192
17,435
Net cash flows (used in) provided by operating activities - discontinued operations
(691)
8,719
Net cash provided by operating activities
31,501
26,154
CASH FLOWS FROM INVESTING ACTIVITIES
Rental property acquisitions and related intangibles
(5,000)
Rental property additions, improvements and other costs
(8,163)
(16,978)
Development of rental property and other related costs
(33,582)
(57,313)
Proceeds from the sales of rental property
236,864
Repayment of notes receivable
709
Investment in unconsolidated joint ventures
(509)
Distributions in excess of cumulative earnings from unconsolidated joint ventures
2,227
1,407
Net cash used in investing activities - continuing operations
193,055
(73,226)
Net cash provided by investing activities - discontinued operations
263,196
Net cash provided by investing activities
189,970
CASH FLOW FROM FINANCING ACTIVITIES
Borrowings from revolving credit facility
18,000
8,000
Repayment of revolving credit facility
(88,000)
(33,000)
Proceeds from mortgages and loans payable
16,479
44,150
Repayment of mortgages, loans payable and other obligations
(150,122)
(134)
Redemption of redeemable noncontrolling interests, net
(12,000)
Payment of early debt extinguishment costs
(5,140)
Common unit redemptions
Payment of financing costs
(450)
Contribution from noncontrolling interests
Distributions to redeemable noncontrolling interests
Payment of common dividends and distributions
(35)
(13)
Net cash (used in) provided by financing activities
(228,720)
12,092
Net (decrease) increase in cash and cash equivalents
(4,164)
228,216
Cash, cash equivalents and restricted cash, beginning of period (1)
51,455
52,302
Cash, cash equivalents and restricted cash, end of period (2)
47,291
280,518
(1)Includes Restricted Cash of $19,701 and $14,207 as of December 31, 2021 and 2020, respectively.
(2)Includes Restricted Cash of $21,153 and $18,836 as of March 31, 2022 and 2021, 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)
Distributions payable
Partners’ Capital:
General Partner, 90,955,759 and 90,948,008 common units outstanding
1,201,834
1,211,790
Limited partners, 8,962,385 and 9,013,534 common units/LTIPs outstanding
197,552
197,236
Total Veris Residential, L.P. partners’ capital
1,401,381
1,409,035
CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per unit amounts) (unaudited)
Net income (loss) available to common unitholders
(9,990)
8,385
Basic earnings per common unit:
Diluted earnings per common unit:
Basic weighted average units outstanding
Diluted weighted average units outstanding
Comprehensive loss attributable to common unitholders
(7,808)
Limited Partner
General Partner
Interest
Common Units/
Common
in Consolidated
Common Units
Vested LTIP Units
Unitholders
Joint Ventures
9,013
(898)
5,463
Distributions to unitholders
(291)
Vested LTIP units
35
Redemption of limited partner common units
(86)
Other comprehensive income (loss)
8,962
9,649
1,330,048
217,560
44,772
5,136
(179)
Redemption of limited partners common units
(678)
Cancellation of unvested LTIP units
8,980
1,336,498
209,571
43,447
Payment of distributions
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”). In December 2021, the Company changed its names from Mack-Cali Realty Corporation to Veris Residential, Inc. and Mack-Cali Realty, L.P. to Veris Residential, L.P. reflecting the Company’s continued transition to a multifamily REIT, and on December 10, 2021, the General Partner began trading on the New York Stock Exchange (“NYSE”) under its new ticker symbol, “VRE.” 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 percent common unit interest in the Operating Partnership as of March 31, 2022 and December 31, 2021, respectively. The General Partner’s business is the ownership of interests in and operation of the Operating Partnership and all of the General Partner’s expenses are incurred for the benefit of the Operating Partnership. The General Partner is reimbursed by the Operating Partnership for all expenses it incurs relating to the ownership and operation of the Operating Partnership.
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, 2022, the Company owned or had interests in 35 properties (the “Properties”) and developable land. The Properties are comprised of 22 multifamily rental properties as well as non-core assets comprised of six office properties, four parking/retail properties, three hotels. The Properties are comprised of: (a) 26 wholly-owned or Company-controlled properties comprised of 15 multifamily properties and 11 non-core assets, and (b) nine properties owned by unconsolidated joint ventures in which the Company has investment interests, including seven multifamily properties and two non-core assets.
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 2021 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.
On January 1, 2016, the Company adopted accounting guidance under ASC 810, Consolidation, modifying the analysis it must perform to determine whether it should consolidate certain types of legal entities. The guidance does not amend the existing disclosure requirements for variable interest entities or voting interest model entities. The guidance, however, modified the requirements to qualify under the voting interest model. Under the revised guidance, the Operating Partnership will be 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., the identification of this entity as a variable interest entity has no impact on the consolidated financial statements of Veris Residential, Inc.. There were no other legal entities qualifying under the scope of the revised guidance that were consolidated as a result of the adoption.
As of March 31, 2022 and December 31, 2021, 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., formerly known as Roseland Residential, L.P. (See Note 14: Redeemable Noncontrolling Interests – Rockpoint Transaction), have total real estate assets of $475.4 million and $477.5 million, respectively, other assets of $5.5 million and $5.3 million, respectively, mortgages of $285.7 million and $285.7 million, respectively, and other liabilities of $20.9 million and $21.2 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, 2021, 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 stated 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 $0.4 million and $0.6 million for the three months ended March 31, 2022 and 2021, respectively. Ordinary repairs and maintenance are expensed as incurred; major replacements and betterments, which improve 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, 2022 and December 31, 2021 is real estate and building and tenant improvements not in service, as follows (dollars in thousands):
Land held for development (including pre-development costs, if any) (a)(b)
315,585
341,496
Development and construction in progress, including land (c)
726,599
694,768
Total
1,042,184
1,036,264
(a)Includes predevelopment and infrastructure costs included in buildings and improvements of $147.9 million and $150.9 million as of March 31, 2022 and December 31, 2021, respectively.
(b)Includes land of $68.8 million as of March 31, 2022 and December 31, 2021.
(c)Includes $92.7 million of land and $3.4 million of building and improvements pertaining to assets held for sale at March 31, 2022.
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
On September 30, 2020, the Company announced that its Board of Directors was suspending its common dividends and distributions attributable to the third and fourth quarters 2020. As the Company’s management estimated that as of September 2020 it had satisfied its dividend obligations as a REIT on taxable income expected for 2020, the Board made the strategic decision to suspend its common dividends and distributions for the remainder of 2020 in an effort to provide greater financial flexibility during the pandemic and to retain incremental capital to support leasing initiatives at its Harborside commercial office properties on the Jersey City waterfront. On March 19, 2021, the Company announced that its Board of Directors would continue to suspend its common dividend for the remainder of 2021 in order to conserve capital and allow for greater financial flexibility during this period of heightened economic uncertainty and based on the Company’s projected 2021 taxable income estimates. The Company believes that with its estimated taxable income/loss for 2021, it will meet its dividend obligations as a REIT for the year with no dividends paid. The Company anticipates its regular quarterly common dividend to remain suspended in 2022 while it seeks to conclude its transition into a pureplay multifamily REIT.
The dividends and distributions payable at March 31, 2022 and December 31, 2021 represent amounts payable on unvested LTIP units.
Impact of Recently-Issued Accounting Standards
In March 2020, the FASB issued ASU 2020-04 Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments provide practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance is optional and is effective between March 12, 2020 and December 31, 2022. The guidance may be elected over time as reference rate reform activities occur. The Company is currently in the process of evaluating the impact the adoption of ASU 2020-04 will have on the Company’s consolidated financial statements.
3. RECENT TRANSACTIONS
Acquisition
On March 16, 2022, the Company agreed to acquire a 240-apartment unit multifamily property in Park Ridge, New Jersey, for a purchase price of $130.0 million. The Company has placed an earnest money deposit of $5.0 million in escrow and the transaction is expected to close in the second quarter of 2022.
Real Estate Held for Sale/Discontinued Operations/Dispositions
The Company had discontinued operations related to its former suburban New Jersey office portfolio (collectively, the “Suburban Office Portfolio”) which represented a strategic shift in the Company’s operations in 2019. The Company has sold all but one of those assets. See Note 7: Discontinued Operations.
As of March 31, 2022, the Company identified as held for sale one office property totaling approximately 1.2 million square feet and several developable land parcels, which are located in Jersey City, Morris Township, Wall and Weehawken, New Jersey. The total estimated sales proceeds, net of expected selling costs but before the required paydown of $250.0 million of mortgage encumbering the office property and related costs, are expected to be approximately $683.3 million. The Company may need to pay significant prepayment costs of up to $15.0 million to pay down this mortgage loan which will be expensed when incurred at the time of such paydown. In April 2022, the Company completed the disposition of two of the developable land parcels held for sale at March 31, 2022 for gross sales proceeds of $100.0 million.
The following table summarizes the real estate held for sale, net, and other assets and liabilities (dollars in thousands):
Assets
Held for Sale
Land
142,212
Building & Other
398,288
Less: Accumulated depreciation
(128,442)
Other assets and liabilities
Unbilled rents receivable, net (a)
15,894
Deferred charges, net (a)
12,637
Total deferred charges & other assets, net
15,573
Mortgages & loans payable, net (a)
(249,106)
Accounts payable, accrued exp & other liability
3,833
Unearned rents/deferred rental income (a)
(3,694)
(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, 2022 (dollars in thousands):
Realized
Gains
Rentable
Net
(Losses)/
Disposition
# of
Square
Property
Sales
Carrying
Unrealized
Date
Property/Address
Location
Bldgs.
Feet
Type
Proceeds
Value
Losses, net
01/21/22
111 River Street
Hoboken, New Jersey
566,215
Office
208,268
(a)
206,432
Totals
(a)The mortgage loan encumbering the property was repaid at closing, for which the Company incurred costs of $6.3 million. These costs were expensed as loss from extinguishment of debt during the three months ended March 31, 2022.
The Company disposed of the following developable land holdings during the three months ended March 31, 2022 (dollars in thousands):
Property Address
03/22/22
Palladium residential land
West Windsor, New Jersey
23,908
24,182
(274)
Palladium commercial land
4,688
1,791
2,897
28,596
25,973
Impairments on Properties and Land Held and Used
The Company determined that, due to the shortening of its expected hold period for several land parcels, it was necessary to reduce the carrying value of these assets to their estimated fair values. Accordingly, the Company recorded an impairment charge $2.9 million on the land parcels in land and other impairments on the consolidated statement of operations for the three months ended March 31, 2022.
4. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
As of March 31, 2022, the Company had an aggregate investment of approximately $135.1 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 to acquire land in anticipation of possible development of rental properties. As of March 31, 2022, the unconsolidated joint ventures owned: seven multifamily properties totaling 2,146 apartment units, a retail property aggregating approximately 51,000 square feet, a 351-room hotel and interests and/or rights to developable land parcels able to accommodate up to 771 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. Unless otherwise noted below, 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, 2022, the outstanding balance of such debt, subject to guarantees, totaled $190.5 million of which $22 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 $0.8 million for such services in the three months ended
March 31, 2022 and 2021, respectively. The Company had $0.1 million and $0.2 million in accounts receivable due from its unconsolidated joint ventures as of March 31, 2022 and December 31, 2021, respectively.
The Company does not have any investments in unconsolidated joint ventures as of March 31, 2022 that are considered VIEs. The Company had three investments in unconsolidated joint ventures which were primarily established to develop real estate property for long-term investment and were deemed VIEs primarily based on the fact that the equity investment at risk was not sufficient to permit the entities to finance their activities without additional financial support. The Company determined that these unconsolidated joint ventures are no longer VIEs since these ventures have completed their development projects and are now in operation.
The following is a summary of the Company's unconsolidated joint ventures as of March 31, 2022 and December 31, 2021 (dollars in thousands):
Property Debt
Number of
Company's
Carrying Value
As of March 31, 2022
Apartment Units
Effective
Maturity
Entity / Property Name
or Rentable SF
Ownership % (a)
Balance
Rate
Multifamily
Metropolitan and Lofts at 40 Park (b) (c)
189
units
25.00
%
2,282
2,547
60,767
(d)
RiverTrace at Port Imperial
316
22.50
5,894
6,077
82,000
11/10/26
3.21
PI North - Riverwalk C
360
40.00
26,596
27,401
135,000
12/22/24
SOFR+
1.2
Riverpark at Harrison
141
45.00
30,192
07/01/35
3.19
Station House
378
50.00
32,646
33,004
92,863
07/01/33
4.82
Urby at Harborside (e)
85.00
65,373
66,418
190,480
08/01/29
5.197
PI North - Land (b) (f)
771
potential units
20.00
1,678
Liberty Landing (g)
850
300
Hyatt Regency Hotel Jersey City
351
rooms
100,000
10/01/26
3.668
Other (h)
347
Totals:
691,302
(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 matures in October 2022; (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 matures in January 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 has guaranteed $22 million of the principal outstanding debt.
(f)The Company owns a 20 percent residual interest in undeveloped land parcels: parcels 6, I, and J that can accommodate the development of 771 apartment units.
(g)Pursuant to a notice letter to its joint venture partner dated January 6, 2022, the Company intends to not proceed with the acquisition and development of Liberty Landing.
(h)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, 2022 and 2021 (dollars in thousands):
Metropolitan and Lofts at 40 Park
(139)
(231)
67
(5)
PI North - Riverwalk C (a)
26
(50)
(358)
(364)
Urby at Harborside
(26)
(745)
PI North - Land
(70)
(57)
Offices at Crystal Lake (b)
Company's equity in earnings (loss) of unconsolidated joint ventures (c)
(a)The property commenced operations in second quarter 2021.
(b)On September 1, 2021, the Company sold its interest in this unconsolidated joint venture to its venture partner for $1.9 million.
(c)Amounts are net of amortization of basis differences of $154 and $143 for the three months ended March 31, 2022 and 2021, respectively.
5. DEFERRED CHARGES AND OTHER ASSETS, NET
(dollars in thousands)
Deferred leasing costs
85,436
88,265
Deferred financing costs - revolving credit facility (a)
6,684
92,120
94,949
Accumulated amortization
(38,369)
(40,956)
Deferred charges, net
53,751
53,993
Notes receivable (b)
3,380
4,015
In-place lease values, related intangibles and other assets, net (c)
10,865
42,183
Right of use assets (c)
2,896
22,298
Prepaid expenses and other assets, net
36,449
28,858
Total deferred charges and other assets, net
(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: Significant Accounting Policies – Deferred Financing Costs.
(b)Includes as of March 31, 2022 and December 31, 2021, respectively, an interest-free note receivable with a net present value of $0.5 million and $0.7 million which matures in April 2023. The Company believes this balance is fully collectible. Also includes $2.6 million, net of a loan loss allowance of $0.2 million, as of March 31, 2022 and $3.1 million, net of a loan loss allowance of $0.2 million, as of December 31, 2021, 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 and $23.7 million as of March 31, 2022 and December 31, 2021, respectively, 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
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and 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 $0.6 million will be reclassified as a decrease to interest expense.
As of March 31, 2022, the Company had one interest rate cap outstanding with a notional amount of $75 million designated as a cash flow hedge 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, 2022 and December 31, 2021 (dollars in thousands):
Fair Value
Asset Derivatives designated
as hedging instruments
Balance sheet location
Interest rate caps
3,032
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, 2022 and 2021 (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,
Interest Rate Caps
15,025
17,610
As of March 31, 2022, the Company did not have any interest rate derivatives in a net liability position. If the Company had breached any of these provisions at March 31, 2022, it could have been required to settle its obligations under the agreements at their termination value which includes accrued interest but excludes any adjustment for nonperformance risk.
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):
Security deposits
6,960
6,884
Escrow and other reserve funds
14,193
12,817
Total restricted cash
7. DISCONTINUED OPERATIONS
On December 19, 2019, the Company announced that its Board had determined to sell the Company’s entire Suburban Office Portfolio totaling approximately 6.6 million square feet, excluding the Company’s office properties in Jersey City and Hoboken, New Jersey. As the decision to sell the Suburban Office Portfolio represented a strategic shift in the Company’s operations, these properties’ results (other than a single property not qualified to be classified as held for sale) were being classified as discontinued operations for all periods through December 31, 2021.
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 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, 2021 (dollars in thousands):
21,637
Operating and other expenses
(8,723)
(659)
(1,293)
Unrealized gains (losses) on disposition of rental property (a)
1,020
Realized gains (losses) on disposition of rental property
21,761
(a)Represents valuation allowances and impairment charges on properties classified as discontinued operations in 2021.
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 shall be 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, includes certain restrictions and covenants which limit, 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 2021 Credit Agreement contains “change of control” provisions that permit the lenders to declare a default and require the immediate repayment of all outstanding borrowings under the 2021 Credit Facility. These change of control provisions, which have been an event
of default under the agreements governing the Company’s revolving credit facilities since June 2000, are triggered if, among other things, a majority of the seats on the Board of Directors (other than vacant seats) become occupied by directors who were neither nominated by the Board of Directors, nor appointed by the Board of Directors. Furthermore, construction loans secured by two multifamily residential property development projects contain cross-acceleration provisions that would constitute an event of default requiring immediate repayment of the construction loans if the change of control provisions under the 2021 Credit Facility are triggered and the lenders declare a default and exercise their rights under the 2021 Credit Facility and accelerate repayment of the outstanding borrowings thereunder. If these change of control provisions were triggered, the Company could seek a forbearance, waiver or amendment of the change of control provisions from the lenders, however there can be no assurance that the Company would be able to obtain such forbearance, waiver or amendment on acceptable terms or at all. If an event of default has occurred and is continuing, the entire outstanding balance under the 2021 Credit Agreement may (or, in the case of any bankruptcy event of default, shall) become immediately due and payable, and the Company will not make any excess distributions except to enable the General Partner to continue to qualify as a REIT under the IRS Code.
On May 6, 2021, the Company drew the full $150 million available under the 2021 Term Loan and borrowed $145 million from the 2021 Credit Facility to retire the Company’s Senior Unsecured Notes. In June 2021, the Company paid down a total of $123 million of borrowings under the 2021 Term Loan, using sales proceeds from several of the Company’s suburban office property dispositions. On July 27, 2021, the Company repaid the outstanding balance of the 2021 Term Loan of $27 million using proceeds from the disposition of a suburban office properties previously held for sale.
The Company was in compliance with its debt covenants under its revolving credit facility as of March 31, 2022.
As of March 31, 2022 and December 31, 2021, the Company had borrowings of $78 million and $148 million under its revolving credit facility, respectively.
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, 2022, 21 of the Company’s properties, with a total carrying value of approximately $3.2 billion, and one of the Company’s land and development projects, with a total carrying value of approximately $476.4 million, 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, 2022, except as otherwise disclosed.
A summary of the Company’s mortgages, loans payable and other obligations as of March 31, 2022 and December 31, 2021 is as follows (dollars in thousands):
Property/Project Name
Lender
Rate (a)
111 River St. (b)
Athene Annuity and Life Company
3.90
150,000
Riverhouse 9 at Port Imperial (c)
Bank of New York Mellon
LIBOR+
2.13
90,024
87,175
12/19/22
Port Imperial 4/5 Hotel (d)
Fifth Third Bank
3.40
89,000
04/01/23
Portside at Pier One
CBRE Capital Markets/FreddieMac
3.57
58,998
08/01/23
Signature Place
Nationwide Life Insurance Company
3.74
43,000
08/01/24
Liberty Towers
American General Life Insurance Company
3.37
265,000
10/01/24
Haus 25 (e)
QuadReal Finance
2.70
269,083
255,453
12/01/24
Portside 5/6 (f)
New York Life Insurance Company
4.56
97,000
03/10/26
BLVD 425
4.17
131,000
08/10/26
BLVD 401
4.29
117,000
101 Hudson
Wells Fargo CMBS
3.20
250,000
10/11/26
The Upton (g)
1.58
75,000
10/27/26
145 Front at City Square
MUFG Union Bank
1.84
63,000
12/10/26
Quarry Place at Tuckahoe
Natixis Real Estate Capital LLC
4.48
41,000
08/05/27
BLVD 475 N/S
The Northwestern Mutual Life Insurance Co.
2.91
165,000
11/10/27
Riverhouse 11 at Port Imperial
4.52
01/10/29
Soho Lofts (h)
New York Community Bank
3.77
160,000
07/01/29
Port Imperial South 4/5 Garage (i)
American General Life & A/G PC
4.85
32,542
32,664
12/01/29
Emery at Overlook Ridge
72,000
01/01/31
Principal balance outstanding
2,118,647
2,252,290
Unamortized deferred financing costs
(9,704)
(11,220)
Total mortgages, loans payable and other obligations, net
(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)In January 2022, the Company repaid this mortgage loan upon disposition of the property which was collateral against the mortgage loan. This mortgage loan does not permit early pre-payment. As a result of the disposal of the property, the Company incurred costs of approximately $6.3 million at closing, which was expensed as loss from extinguishment of debt in the first quarter of 2022. See Note 3-Recent Transactions.
(c)This construction loan has a maximum borrowing capacity of $92 million and provides, subject to certain conditions, and a one year extension option with a fee of 15 basis points, of which the Company has guaranteed 10 percent of the outstanding principal, subject to certain conditions. The Company has agreed to terms on a new mortgage loan, which is expected to close in the second quarter of 2022, that will repay the existing constructing loan.
(d)In May 2021, the Company executed an agreement extending its maturity date to April 2023, with a six month extension option. The Company repaid $5 million of the outstanding principal and has guaranteed $14.5 million of the outstanding principal, subject to certain conditions. The loan requires a one month trailing debt service coverage charge test (“DSCR Test”), which the Company was not in compliance with for the quarter ended December 31, 2021. Therefore, the Company is required to deposit three months of interest amounting to $0.7 million into an escrow account and sweep all excess property level cash flows into such escrow account until two consecutive periods have passed where the Company is in compliance with the DSCR Test. The Company does not believe this will have a material impact on its results of operations or financial condition.
(e)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.
(f)The Company has guaranteed 10 percent of the outstanding principal, subject to certain conditions.
(g)On October 27, 2021, the Company obtained a $75 million mortgage loan maturing in October 2026 and repaid the existing construction loan. The Company 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.
(i)The loan was modified to defer interest and principal payments for a six month period ending December 31, 2020. As of March 31, 2022, deferred interest of $0.8 million has been added to the principal balance.
Cash paid for interest for the three months ended March 31, 2022 and 2021 was $17.8 million and $18.1 million (of which zero and $1.3 million pertained to properties classified as discontinued operations), respectively. Interest capitalized by the Company for the three months ended March 31, 2022 and 2021 was $6.4 million and $8.6 million, respectively (which amounts included zero and $0.3 million for the three months ended March 31, 2022 and 2021, respectively, of interest capitalized on the Company’s investments in unconsolidated joint ventures which were substantially in development).
Weighted Average
Interest Rate (a)
Fixed Rate Debt
1,526,685
3.70
1,675,353
3.71
Revolving Credit Facility & Other Variable Rate Debt
660,258
3.51
713,717
3.32
Totals/Weighted Average:
2,186,943
3.64
2,389,070
3.60
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, 2022 and 2021 was $182 thousand and $180 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, 2022 and December 31, 2021. 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, 2022 and December 31, 2021.
The fair value of the Company’s long-term debt, consisting of revolving credit facility and term loan and mortgages, loans payable and other obligations aggregated approximately $2.1 billion and $2.4 billion as compared to the book value of approximately $2.2 billion and $2.4 billion as of March 31, 2022 and December 31, 2021, 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 and the unsecured notes 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 $172 thousand at March 31, 2022, 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, 2022. 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, 2022, assumptions that were utilized in the fair value calculation included:
Primary Valuation
Unobservable
Range of
Description
Techniques
Assumptions
Rates
Land holdings held for sale and held and used on which the Company recognized impairment losses
Developable area and units and market rate per square foot or sale prices per purchase and sale agreements
Market rate per residential unit
Waterfront
$76,000 - $78,000
The Company determined that, due to the shortening of its expected hold period for several land parcels, it was necessary to reduce the carrying value of these assets to their estimated fair values. Accordingly, the Company recorded an impairment charge of $2.9 million on the land parcels in land and other impairments on the consolidated statement of operations for the three months ended March 31, 2022.
Disclosure about fair value of assets and liabilities is based on pertinent information available to management as of March 31, 2022 and December 31, 2021. Although management is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since March 31, 2022 and current estimates of fair value may differ significantly from the amounts presented herein.
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, 2022.
12. COMMITMENTS AND CONTINGENCIES
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
PILOT
Property Name
Asset Type
Expiration Dates
(Dollars in Thousands)
BLVD 475 (Monaco) (a)
Jersey City, NJ
2/2021
474
111 River Street (b)
Hoboken, NJ
4/2022
85
370
Harborside Plaza 4A (c)
2/2022
264
Harborside Plaza 5 (d)
6/2022
1,109
1,080
BLVD 401 (Marbella 2) (e)
4/2026
359
260
RiverHouse 11 at Port Imperial (f)
Weehawken, NJ
7/2033
350
326
Port Imperial 4/5 Hotel (g)
Hotel
12/2033
733
737
RiverHouse 9 at Port Imperial (h)
6/2046
322
Haus 25 (i)
Mixed-Use
3/2047
Park Apartments at Port Imperial (j)
(j)
Total Pilot taxes
3,176
3,511
(a)The annual PILOT is equal to ten percent of Gross Revenues, as defined.
(b)The property was disposed of in the first quarter of 2022.
(c)The annual PILOT is equal to two percent of Total Project Costs, as defined. The total Project Costs are $49.5 million.
(d)The annual PILOT is equal to two percent of Total Project Costs, as defined. The total Project Costs are $170.9 million.
(e)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.
(f)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.
(g)The annual PILOT is equal to two percent of Total Project Costs, as defined.
(h)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.
(i)For a term of 25 years following substantial completion, which occurred on April 1, 2022. The annual PILOT is equal to seven percent of Gross Revenues, as defined.
(j)For a term of 25 years following substantial completion. 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. The land parcel was subsequently sold in the second quarter of 2022.
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.
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.
Future minimum rental payments under the terms of all non-cancelable ground leases under which the Company is the lessee, as of March 31, 2022 and December 31, 2021, are as follows (dollars in thousands):
Year
Amount (a)
April 1 through December 31, 2022
144
2023
192
2024
2025
199
2026
2027 through 2101
31,864
Total lease payments
32,790
Less: imputed interest
(29,600)
3,190
As of December 31, 2021
Amount
1,695
1,702
1,721
1,728
151,253
159,827
(136,141)
23,686
Ground lease expense incurred by the Company amounted to $348 thousand and $568 thousand for the three months ended March 31, 2022 and 2021, respectively.
In conjunction with the adoption of ASU 2016-02 (Topic 842), starting on January 1, 2019, the Company capitalized operating leases, which had a balance of $2.9 million at March 31, 2022 for two ground leases. 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 remaining 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.
The Company is developing a 750-unit multifamily project at 25 Christopher Columbus, also known as Haus 25, in Jersey City, New Jersey, which began construction in the first quarter of 2019. The construction project, which is estimated to cost $469.5 million, of which $438.6 million has been incurred through March 31, 2022, was partially ready for occupancy in April 2022. The Company has funded $169.5 million of the construction costs, and the remaining construction costs are expected to be funded from a $300 million construction loan (of which $269.1 million was drawn as of March 31, 2022).
MANAGEMENT CHANGES
In the first quarter of 2022, the Company announced a number of management changes. Effective, January 12, 2022, the Company terminated the employment of its Chief Accounting Officer, Mr. Giovanni M. DeBari, and appointed Ms. Amanda Lombard in his place. In addition, the Company also disclosed that its Chief Financial Officer, David Smetana, would leave the Company at the end of 2022, and that Ms. Lombard would assume the role of CFO at his departure. Mr. Smetana subsequently decided to leave the Company effective March 31, 2022. Ms. Lombard will serve as both principal financial officer and principal accounting officer.
In addition, on March 31, 2022, the Company terminated the employment of its Executive Vice President and Chief Investment Officer Ricardo Cardoso effective April 1, 2022 and the employment of its Executive Vice President, General Counsel and Secretary Gary T. Wagner effective April 15, 2022. It has appointed Jeff Turkanis and Taryn Fielder to succeed each officer, respectively.
During the three months ended March 31, 2022, the Company’s total costs incurred relating to the management changes discussed above, including the severance and related costs for the departure of the Company’s former executive officers, as well as other terminated employees, amounted to $7.6 million, which was included in general and administrative expense.
Certain Company properties acquired by contribution from unrelated common unitholders of the Operating Partnership, were subject to restrictions on disposition, except in a manner which did not result in recognition of built-in-gain allocable to such unitholders or which reimbursed the unitholders for the tax consequences thereof (collectively, the “Property Lock-Ups”). While these Property Lock-Ups, have expired, the Company is generally required to use commercially reasonable efforts to prevent any disposition of the subject properties from resulting in the recognition of built-in gain to these unitholders, which include members of the Mack Group (which includes William L. Mack, a former director and David S. Mack, a former director. As of March 31, 2022, taking into account tax-free exchanges on the originally contributed properties, either wholly or partially, over time, five of the Company’s properties, as well as certain land and development projects, including properties classified as held for sale as of March 31, 2022, with an aggregate carrying value of approximately $1.0 billion, are subject to these conditions.
As of March 31, 2022, the Company has outstanding stay-on award agreements with 34 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 $1.8 million, including the potential future issuance of up to 82,629 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 2038. 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, 2022 and December 31, 2021 are as follows (dollars in thousands):
69,547
91,051
81,283
76,830
74,519
2027 and thereafter
381,341
774,571
115,256
114,355
98,374
94,042
91,297
416,712
930,036
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.
On February 27, 2017, the Company, Veris Residential Trust (“VRT”), formerly known as Roseland Residential Trust, the Company’s subsidiary through which the Company conducts its multifamily residential real estate operations, Veris Residential Partners, L.P. (“VRLP”), formerly known as Roseland Residential, L.P., 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 three months ended March 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, 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, 2022, 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, 2022, 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, 2022, 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 Payment (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. 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, 2022. 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 is approximately $482.0 million as of March 31, 2022.
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. In March 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) 3.5 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 42,800 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, 2022 and 2021, respectively (dollars in thousands):
Series A and
A-1 Preferred
Rockpoint
Redeemable
Units
In VRLP
in VRT
52,324
468,989
Redemption/Payout
Redeemable Noncontrolling Interests Issued
40,324
509,313
Income Attributed to Noncontrolling Interests
421
6,016
6,437
Distributions
(421)
(6,016)
Redemption Value Adjustment
(22)
3,221
3,199
40,302
472,210
460,973
513,297
455
6,471
(455)
1,970
462,943
515,267
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, 2022 and 2021, respectively (dollars in thousands):
Opening Balance
1,398,817
Common stock distributions
Stock Compensation
Rebalancing of ownership percent between parent and
subsidiaries
Balance at March 31
1,406,823
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, 2022, the Company had not sold any shares pursuant to the ATM Program.
The General Partner has a Dividend Reinvestment and Stock Purchase Plan (the “DRIP”) which commenced in March 1999 under which approximately 5.5 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 5.5 million shares of the General Partner’s common stock reserved for issuance under the DRIP.
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. The stock options will vest in one-third increments on each of the first three anniversaries of the date of grant, subject to earlier vesting on certain termination events.
There were no stock options that were exercised under any stock option plans for the three months ended March 31, 2022 and 2021, respectively. The Company has a policy of issuing new shares to satisfy stock option exercises.
As of March 31, 2022 and December 31, 2021, the stock options outstanding had a weighted average remaining contractual life of approximately 5.2 and 5.5 years, respectively.
The Company recognized stock options expense of $253 thousand and $114 thousand for the three months ended March 31, 2022 and 2021, respectively.
Appreciation-Only LTIP Units
In March 2019, the Company granted 625,000 Appreciation-Only LTIP Units (“AO LTIP Units”) which are a class of partnership interests in the Operating Partnership that are intended to qualify as “profits interests” for federal income tax purposes. The value of vested AO LTIP Units is realized through conversion of the AO LTIP Units into common units of limited partnership interests of the Operating Partnership (the “Common Units”). The AO LTIP Units allow the former executive to earn zero to 100% of the AO LTIP Units granted on a graduated basis of 250,000, 250,000 and 125,000 AO LTIP Units if the fair market value of the Company’s common stock exceeds the threshold levels of $25.00, $28.00 and $31.00 for 30 consecutive days prior to March 13, 2023.
Upon conversion of AO LTIP Units to Common Units, a special cash distribution will be granted equal to 10% (or such other percentage specified in the applicable award agreement) of the distributions received by a holder of an equivalent number of Common Units during the period from the grant date of the AO LTIP Units through the date of conversion in respect of each such AO LTIP Unit, on a per unit basis.
As of March 31, 2022, the Company had $0.6 million of total unrecognized compensation cost related to unvested AO LTIP Units granted under the Company’s stock compensation plans. That cost is expected to be recognized over a remaining weighted average period of 0.9 years. The Company recognized AO LTIP unit expense of $155 thousand for each of the three months ended March 31, 2022 and 2021.
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 9, 2021, 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 39,529 unvested Restricted Stock Awards were outstanding at March 31, 2022. During the year ended December 31, 2021 and the three months ended March 31, 2022, respectively, the Company granted restricted stock units to certain non executive employees of the Company which will vest after three years, of which 407,943 were still outstanding as of March 31, 2022. 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.
As of March 31, 2022, the Company had $0.1 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 0.2 years.
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 LTIP Units, except for awards granted in 2021 and 2022 which were in the form of restricted stock units (each, an “RSU” and collectively, the “RSU LTIP Awards”) and constitute awards under the 2013 Plan. LTIP Awards are typically issued from the Company’s Outperformance Plan adopted by the General Partner’s Board of Directors.
For LTIP Awards granted in 2019, approximately 25 percent to 100 percent of the grant date fair value of the LTIP Awards were in the form of time-based awards that vest after three years and the remaining portion of the grant date fair value of the 2019 LTIP Awards and all of the 2020 LTIP Awards consist of multi-year, market-based awards. Participants of performance-based awards will only earn the full awards if, over the three year performance period, the Company achieves a 36 percent absolute total stockholder return (“TSR”) and if the Company’s TSR is in the 75th percentile of performance as compared to the office REITs in the NAREIT index for awards granted in 2019 and as compared to the REITs in the NAREIT index for awards granted in 2020. The performance period for the 2019 performance-based awards ended in 2022 and the awards were forfeited as they did not vest.
In January 2021, the Company granted LTIP Units (the “J Series 2021 LTIP Awards”) under the 2013 Plan. The J Series 2021 LTIP Awards are subject to the achievement of certain sales performance milestones with respect to commercial asset dispositions by the Company over a performance period from August 1, 2020 through December 31, 2022. These sales milestones will be based on the aggregate gross sales prices of the assets, provided that the asset will only be included in the milestone if it is sold for not less than 85 percent of its estimated net asset value, as defined in the agreement. These awards were granted to one executive who was terminated in the first quarter of 2022, and as a result of the termination, the Company has determined that these awards were fully earned based on the achievement of the maximum sales milestones and vested as of the termination date which is April 1, 2022.
In April 2021, the Company granted LTIP Awards in the form of RSUs. Each RSU entitles the holder to one share of the General Partner’s common stock upon settlement. Approximately 292,000 of the RSUs are subject to time-based vesting conditions and will vest in three equal, annual installments over a three year period ending in April 2024, of which 55,825 of the RSUs vested in April 2022. Approximately 453,000 of the RSUs are subject to market-based vesting conditions Recipients will only earn the full amount of the market-based RSUs if, over the three year performance period, the General Partner achieves a 36 percent absolute TSR and if the General Partner’s TSR is in the 75th percentile of performance as compared to a group of 24 peer REITs.
Up to an additional approximately 292,000 RSUs were granted subject to the achievement of adjusted funds from operations of $0.60 per share in the fiscal year ending December 31, 2023. The 2021 RSU LTIP Awards are designed to align the interests of senior management to relative and absolute performance of the Company over a three year performance period.
In March 2022, the Company also granted LTIP Awards in the form of restricted stock units (each, an “RSU”). Each RSU entitles the holder to one share of the General Partner’s common stock upon settlement. Approximately 179,000 of the RSUs are subject to time-based vesting conditions and will vest in three equal, annual installments over a three year period ending in March 2025. Approximately 194,000 of the RSUs are subject to market-based vesting conditions Recipients will only earn the target amount of the market-based RSUs if, over the three year performance period, the General Partner achieves a twenty-four percent absolute TSR and if the General Partner’s TSR is in the 55th percentile of performance as compared to a group of 23 peer REITs. Recipients can earn up to 160 percent of the target amount of market-based RSUs if, over the three year performance period, the General Partner achieves a 33 percent absolute TSR and if the General Partner’s TSR is at least equal to the 75th percentile of performance as compared to the same group.
Up to an additional approximately 179,000 RSUs were granted subject to the achievement of adjusted funds from operations ranging from $0.40 to $0.60 per share in the fiscal year ending December 31, 2024. The 2022 RSU LTIP Awards are designed to align the interests of senior management to relative and absolute performance of the Company over a three year performance period.
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.
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, 2022, the Company had $1.8 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 1.9 years.
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, 2022 and 2021, 6,183 and 4,583 deferred stock units were earned, respectively. As of March 31, 2022 and December 31, 2021, there were 42,172 and 37,603 deferred stock units outstanding, respectively.
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, 2022 and 2021 in accordance with ASC 260, Earnings Per Share (dollars in thousands, except per share amounts):
Computation of Basic EPS
Add (deduct): Noncontrolling interests in consolidated joint ventures
Add (deduct): Noncontrolling interests in Operating Partnership
Add (deduct): Redeemable noncontrolling interests
Add (deduct): Redemption value adjustment of redeemable noncontrolling
interests attributable to common shareholders
Income (loss) from continuing operations available to common shareholders
(12,034)
(24,844)
Income (loss) from discontinued operations available to common shareholders
30,676
Net income (loss) available to common shareholders for basic earnings per share
5,832
Weighted average common shares
Basic EPS:
Computation of Diluted EPS
Net income (loss) from continuing operations available to common shareholders
(2,305)
interests attributable to the Operating Partnership unitholders
Income (loss) from continuing operations for diluted earnings per share
(13,223)
(27,328)
Income (loss) from discontinued operations for diluted earnings per share
Net income (loss) available for diluted earnings per share
6,415
Diluted EPS:
Net (income) loss available to common shareholders
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):
Basic EPS shares
Add: Operating Partnership – common and vested LTIP units
8,983
9,068
Diluted EPS Shares
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, 2022 and 2021 were 2,218,081 and 2,035,766, respectively. Unvested restricted common stock outstanding as of March 31, 2022 and 2021 were 39,529 and 52,974 shares, respectively. Unvested AO LTIP Units outstanding as of each of March 31, 2022 and 2021 were 625,000.
No dividends were declared per common share for the three-month periods ended March 31, 2022 and 2021.
Computation of Basic EPU
Add (deduct): Redemption value adjustment of redeemable noncontrolling interests
(3,233)
(1,970)
Income (loss) from continuing operations available to unitholders
Income (loss) from discontinued operations available to unitholders
Net income (loss) available to common unitholders for basic earnings per unit
Weighted average common units
Basic EPU:
Computation of Diluted EPU
Net income (loss) from continuing operations available to common unitholders
Income (loss) from discontinued operations for diluted earnings per unit
Net income (loss) available to common unitholders for diluted earnings per unit
Weighted average common unit
Diluted EPU:
Income (loss) from continuing operations available to common unitholders
Income (loss) from discontinued operations available to common unitholders
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):
Basic EPU units
Add: Stock Options
Diluted EPU Units
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, 2022 and 2021 were 2,218,081 and 2,035,766, respectively. Unvested restricted common stock outstanding as of March 31, 2022 and 2021 were 39,529 and 52,974 shares, respectively. Unvested AO LTIP Units outstanding as of each of March 31, 2022 and 2021 were 625,000.
No distributions were declared per common unit for the three-month periods ended March 31, 2022 and 2021.
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, 2022 and 2021, respectively (dollars in thousands):
Net (loss) income
Unit distributions
Redemption of common units for common stock
Rebalancing of ownership percentage between parent and subsidiaries
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, 2022, the Company has decreased noncontrolling interests in the Operating Partnership and increased additional paid-in capital in Veris Residential, Inc. stockholders’ equity by approximately $1.7 million as of March 31, 2022.
During the three months ended March 31, 2022, the Company redeemed for cash 85,779 common units at their fair value of $1.4 million.
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.
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 – AO LTIP Units (Appreciation-Only LTIP Units).
AO LTIP Units are a class of partnership interests in the Operating Partnership that are intended to qualify as “profit interests” for federal income tax purposes and generally only allow 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 are 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, have a finite term during which they may be converted into Common Units, not in excess of ten years from the grant date of the AO LTIP Units.
As of March 31, 2022 and December 31, 2021, the noncontrolling interests common unitholders owned 9.0 percent and 9.0 percent of the Operating Partnership, respectively.
The Company consolidates certain joint ventures in which it has ownership interests. Various entities and/or individuals hold noncontrolling interests in these ventures.
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, 2022 and 2021. The Company had no long lived assets in foreign locations as of March 31, 2022 and December 31, 2021. 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, 2022 and 2021 and selected asset information as of March 31, 2022 and December 31, 2021 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
Corporate
& Other Real Estate
Real Estate & Services (d)
& Other (e)
Company
Total revenues:
Three months ended:
March 31, 2022
53,084
46,517
(502)
March 31, 2021
39,072
37,316
(295)
Total operating and
interest expenses (a):
14,476
24,786
32,601
71,863
16,122
22,156
27,995
66,273
Equity in earnings (loss) of
unconsolidated joint ventures:
(119)
(1,337)
Net operating income (loss) (b):
38,608
21,244
(33,103)
26,749
22,831
13,823
(28,290)
8,364
Total assets:
951,402
3,297,133
11,290
December 31, 2021
1,216,717
3,294,226
16,375
Total long-lived assets (c):
875,098
3,094,290
(1,544)
3,967,844
1,087,198
3,098,492
(1,309)
4,184,381
Total investments in
(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, and which also include the Company’s consolidated hotel operations.
(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.
The following schedule reconciles net operating income to net income (loss) available to common shareholders (dollars in thousands):
Net operating income
Add (deduct):
(26,514)
(28,173)
(2,932)
(413)
Realized gains (losses) and unrealized losses on disposition of
Noncontrolling interests in Operating Partnership
Noncontrolling interest in discontinued operations
The following schedule reconciles net operating income to net income (loss) available to common unitholders (dollars in thousands):
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.
As of March 31, 2022, the Company owns or has interests in 35 properties (collectively, the “Properties”), consisting of 22 multifamily rental properties containing 6,691 apartment units as well as non-core assets comprised six office properties, four parking/retail properties, three hotels and developable land. 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.
Results From Operations
The following comparisons for the three months ended March 31, 2022 (“2022”), as compared to the three months ended March 31, 2021 (“2021”), make reference to the following:
(i)“Same-Store Properties,” which represent all in-service properties owned by the Company at December 31, 2020 excluding properties sold, disposed of, removed from service, or being redeveloped or repositioned from January 1, 2021 through March 31, 2022;
(ii)“Acquired and Developed Properties,” which represent all properties acquired by the Company or commencing initial operations from January 1, 2021 through March 31, 2022 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, 2021 through March 31, 2022.
Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021
Dollar
Percent
Change
Revenue from rental operations and other:
37
0.1
1,091
35.4
364
34.6
23,131
632.7
Total revenues from rental operations
98,189
73,566
24,623
33.5
Property expenses:
863
7.3
(159)
(3.9)
3,081
19.9
Total property expenses
35,158
31,373
3,785
12.1
Non-property revenues:
(1,617)
(64.0)
Total non-property revenues
Non-property expenses:
(955)
(28.8)
5,486
39.2
(1,659)
(5.9)
2,519
609.9
Total non-property expenses
51,284
45,893
5,391
11.7
Operating income (loss)
12,657
(1,173)
13,830
1,179.0
Other (expense) income:
2,585
14.7
829.4
969
66.6
Realized gains (losses) and unrealized losses on disposition
of rental property, net
Total other (expense) income
1,865
9.8
15,695
77.6
(10,962)
(100.0)
(22,781)
Total discontinued operations
(18,048)
(133.5)
The following is a summary of the changes in revenue from rental operations and other, and property expenses in 2022, as compared to 2021, divided into Same-Store Properties, Acquired and Developed Properties and Properties Sold in 2021 and 2022 (excluding properties classified as discontinued operations):
Same-Store
Acquired and Developed
Properties
Sold in 2021 and 2022
Revenue from rental
operations and other:
441
0.7
4,661
7.1
(5,065)
(7.7)
893
28.9
270
8.7
(72)
(2.3)
22,903
626.4
115
3.1
113
24,601
33.4
5,046
6.9
(5,024)
(6.8)
662
5.6
712
6.0
(511)
(4.3)
(245)
(6.0)
238
5.8
(152)
(3.7)
3,408
22.1
1,010
6.5
(8.7)
3,825
12.2
1,960
6.2
(2,000)
(6.4)
OTHER DATA:
Number of Consolidated Properties
24
2
19
Commercial Square feet (in thousands)
4,350
3,596
Multifamily portfolio (number of units)
4,545
4,039
506
Revenue from leases. Revenue from leases for the Same-Store Properties increased $0.4 million, or 0.7 percent, for 2022 as compared to 2021, due primarily to an increase in lease-up of the multifamily rental properties, partially offset by a reduction in occupancy of the office properties in 2022 as compared to 2021.
Parking income. Parking income for the Same-Store Properties increased $0.9 million, or 28.9 percent, for 2022 as compared to 2021 due primarily to increased usage at the parking garages in 2022 as compared to 2021.
Hotel income. Hotel income for the Same-Store Properties increased $0.4 million, or 34.6 percent, for 2022 as compared to 2021, primarily due to the partial shutdown of hotel operations in 2021 as a result of the COVID-19 pandemic.
Other income. Other income for the Same-Store Properties increased $22.9 million, or 626.4 percent, for 2022 as compared to 2021, due primarily to early lease termination income from office properties recognized in 2022.
Real estate taxes. Real estate taxes for the Same-Store Properties increased $0.7 million, or 5.6 percent, for 2022 as compared to 2021, due primarily to the expiration in early 2022 of the PILOT agreements on two multifamily properties located in Jersey City, New Jersey.
Utilities. Utilities for the Same-Store Properties decreased $0.2 million, or 6.0 percent, for 2022 as compared to 2021, due primarily to true-up billings in 2022 of actual meter readings at the residential properties.
Operating services. Operating services for the Same-Store Properties increased $3.4 million, or 22.1 percent, for 2022 as compared to 2021, due primarily to an increase in property maintenance and insurance expenses of $2.0 million in 2022 as compared to 2021.
Real estate services revenue. Real estate services revenue (primarily reimbursement of property personnel costs) decreased $1.6 million, or 64.0 percent, for 2022 as compared to 2021, due primarily to decreased third party development and management activity in 2022 as compared to 2021.
Real estate services expense. Real estate services expense decreased $1.0 million, or 28.8 percent, for 2022 as compared to 2021, due primarily to lower salaries and related expenses from a reduction in third-party services activities in 2022 as compared to 2021.
General and administrative. General and administrative expenses increased $5.5 million, or 39.2 percent, for 2022 as compared to 2021. This increase was due primarily to a $7.2 million increase in executive management changes and related costs for 2022 as compared to 2021. This was partially offset by CEO and related management change costs of $2.1 million in 2021.
Depreciation and amortization. Depreciation and amortization decreased $1.7 million, or 5.9 percent, for 2022 over 2021. This decrease was primarily due to a decrease of $2.3 million for properties sold or removed from service and lower depreciation of fully amortized assets of $1.3 million for Same-Store Properties for 2022 as compared to 2021. These were partially offset by an increase of approximately $1.9 million for 2022 as compared to 2021 in the Acquired Properties.
Land and other impairments, net. In 2022, the Company recorded net $2.9 million of impairments on developable land parcels. In 2021, the Company recorded $0.4 million of impairments on developable land parcels. See Note 11: Disclosure of Fair Value of Assets and Liabilities.
Interest expense. Interest expense decreased $2.6 million, or 14.7 percent, for 2022 as compared to 2021. This decrease was primarily the result of lower average debt balances in 2022 as compared to 2021, due to the Company’s redemption of its Senior Unsecured Notes in 2021.
Interest and other investment income (loss). Interest and other investment income (loss) increased $0.1 million for 2022 as compared to 2021, due primarily to interest received on a note receivable in 2022.
Equity in earnings (loss) of unconsolidated joint ventures. Equity in earnings of unconsolidated joint ventures increased $1.0 million, or 66.6 percent for 2022 as compared to 2021, due primarily to an increase of $0.7 million for 2022 as compared to 2021 from the Urby at Harborside venture, resulting from lower concessions and discounts to tenants in 2022 as compared to 2021.
Realized gains (losses) and unrealized gains (losses) on disposition of rental property, net. The Company had realized gains (unrealized losses) on disposition of rental property of a net gain of $1.8 million in 2022 on the disposition of an office property located in Hoboken, New Jersey.
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.
Gain (loss) from extinguishment of debt, net. In 2022, the Company recognized a loss of $6.3 million on extinguishment of debt in connection with the sale of an office property located in Hoboken, New Jersey.
Discontinued operations. For all periods presented, the Company classified 36 office properties totaling 6.3 million square feet as discontinued operations, some of which were sold during the periods. The Company recognized income from discontinued operations of $11.0 million in 2021, due to total revenues of $21.6 million, operating and other expenses of $8.7 million, depreciation and amortization of $0.6 million and interest expense of $1.3 million. The Company recognized realized gains (losses) and unrealized losses on disposition of rental property and impairments, net, of a gain of $22.8 million on these properties in 2021. See Note 7: Discontinued Operations to the Financial Statements.
Net Income (loss). Net income (loss) decreased to a loss of $4.5 million in 2022 from income of $13.5 million in 2021. The decrease was due to the factors discussed above.
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 borrowings under its revolving credit facility, 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, net cash provided by operating activities and draw from its revolving credit facility.
The COVID-19 pandemic continues to have a significant impact in the U.S. and around the globe. The global impact of the outbreak is rapidly evolving and has included quarantines, restrictions on business activities, including construction activities, restrictions on group gatherings, and restrictions on travel. These actions have and may in the future create disruption in the global economy and supply chains. The extent to which COVID-19 impacts the Company’s results will depend on future developments, many of which are highly
uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions taken to contain it or treat its impact. If the outbreak continues, there will likely be continued negative economic impacts, market volatility, and business disruption which could negatively impact the Company’s tenants’ ability to pay rent, the Company’s ability to lease vacant space, the Company’s ability to complete development and redevelopment projects and the Company’s ability to dispose of assets held for sale and these consequences, in turn, could materially impact the Company’s results of operations.
Construction Projects
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.
Property Lock-Ups
Certain Company properties acquired by contribution from unrelated common unitholders of the Operating Partnership were subject to restrictions on disposition, except in a manner which did not result in recognition of built-in-gain allocable to such unitholders or which reimbursed the unitholders for the tax consequences thereof (collectively, the “Property Lock-Ups”). While these Property Lock-Ups have expired, the Company is generally required to use commercially reasonable efforts to prevent any disposition of the subject properties from resulting in the recognition of built-in gain to these unitholders, which include members of the Mack Group (which includes William L. Mack, a former director and David S. Mack, a former director). As of March 31, 2022, taking into account tax-free exchanges on the originally contributed properties, either wholly or partially, over time, five of the Company’s properties, as well as certain land and development projects, with an aggregate carrying value of approximately $1.0 billion, are subject to these conditions.
Unencumbered Properties
As of March 31, 2022, the Company had one unencumbered property with a carrying value of $18.3 million representing 3.8 percent of the Company’s total consolidated property count.
Cash, cash equivalents and restricted cash decreased by $4.2 million to $47.3 million at March 31, 2022, compared to $51.4 million at December 31, 2021. This increase is comprised of the following net cash flow items:
(1)
$31.5 million provided by operating activities.
(2)
$193.1 million provided by investing activities, consisting primarily of the following:
$236.9 million received from proceeds from the sales of rental property; plus
(b)
$2.2 million received from distributions in excess of cumulative earnings from unconsolidated joint ventures; minus
(c)
$8.2 million used for additions to rental property, improvements and other costs; minus
$33.6 million used for the development of rental property, other related costs and deposits; minus
(e)
$5 million used for rental property acquisitions and related intangibles.
(3)
$228.7 million used in financing activities, consisting primarily of the following:
$88 million used for repayments of revolving credit facility and term loan; plus
$150.1 million used for repayments of mortgages, loans payable and other obligations; plus
$6.5 million used for distribution to redeemable noncontrolling interests; plus
$12 million used for distribution to redeemable noncontrolling interests; plus
$1.4 million used for redemption of common units; plus
(f)
$5.1 million used for payment of early debt extinguishment costs, minus
(g)
$18 million from borrowings under the revolving credit facility; minus
(h)
$16.5 million from proceeds received from mortgages and loans payable.
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, 2022:
($000’s)
% of Total
Maturity in Years
Fixed Rate Secured
1,532,540
69.77
4.76
Variable Rate Secured Debt
664,107
30.23
2.52
2,196,647
100.00
4.09
Total Debt, Net
(a)The actual weighted average LIBOR rate for the Company’s outstanding variable rate debt was 0.31 percent as of March 31, 2022, 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, 2022.
Debt Maturities
Scheduled principal payments and related weighted average annual effective interest rates for the Company’s debt as of March 31, 2022 are as follows:
Scheduled
Principal
Weighted Avg.
Amortization
Maturities
Effective Interest Rate of
Period
Future Repayments (a)
428
90,452
2.37
2,047
147,998
150,045
2024 (b)
3,403
655,083
658,486
3.93
3,300
3.98
3,407
733,000
736,407
3.48
Thereafter
9,415
548,542
557,957
3.69
Sub-total
22,000
2,174,647
Totals/Weighted Average
12,296
(c)Includes outstanding borrowings of the Company’s revolving credit facility of $78.0 million.
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 2021 Credit Agreement contains “change of control” provisions that permit the lenders to declare a default and require the immediate repayment of all outstanding borrowings under the 2021 Credit Facility. These change of control provisions, which have been an event of default under the agreements governing the Company’s revolving credit facilities since June 2000, are triggered if, among other
things, a majority of the seats on the Board of Directors (other than vacant seats) become occupied by directors who were neither nominated by the Board of Directors, nor appointed by the Board of Directors. Furthermore, construction loans secured by two multifamily residential property development projects contain cross-acceleration provisions that would constitute an event of default requiring immediate repayment of the construction loans if the change of control provisions under the 2021 Credit Facility are triggered and the lenders declare a default and exercise their rights under the 2021 Credit Facility and accelerate repayment of the outstanding borrowings thereunder. If these change of control provisions were triggered, the Company could seek a forbearance, waiver or amendment of the change of control provisions from the lenders, however there can be no assurance that the Company would be able to obtain such forbearance, waiver or amendment on acceptable terms or at all. If an event of default has occurred and is continuing, the entire outstanding balance under the 2021 Credit Agreement may (or, in the case of any bankruptcy event of default, shall) become immediately due and payable, and the Company will not make any excess distributions except to enable the General Partner to continue to qualify as a REIT under the IRS Code.
On May 6, 2021, the Company drew the full $150 million available under the 2021 Term Loan and borrowed $145 million from the 2021 Credit Facility to retire the Company’s Senior Unsecured Notes. In June 2021, the Company paid down a total of $123 million of borrowings under the 2021 Term Loan, using sales proceeds from several of the Company’s suburban office property dispositions. On July 27, 2021, the Company repaid the outstanding balance of the 2021 Term Loan of $27 million, using proceeds from the disposition of a suburban office property previously held for sale.
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 does not intend to reserve funds to retire the Company’s outstanding borrowings under its revolving credit facility or its mortgages, loans payable and other obligations upon maturity. Instead, the Company will seek to retire such debt primarily with available proceeds to be received from the Company’s planned sales of its assets, as well as obtaining additional mortgage financings on or before the applicable maturity dates. If it cannot raise sufficient proceeds to retire the maturing debt, the Company may draw on its revolving credit facility to retire the maturing indebtedness, which would reduce the future availability of funds under such facility. As of May 2, 2022, the Company had outstanding borrowings of $103 million under its revolving credit facility. The Company is reviewing various financing and refinancing options, including the issuance of additional, or exchange of current, unsecured debt of the Operating Partnership or common and preferred stock of the General Partner, and/or obtaining additional mortgage debt of the Operating Partnership, some or all of which may be completed in 2022. 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 5.5 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 5.5 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 $200 million of shares of common stock have been allocated for sales pursuant to the Company’s ATM Program commenced in December 2021 and no securities have been sold as of May 2, 2022.
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 May 2, 2022.
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, 2022, the outstanding balance of such debt, subject to guarantees, totaled $190.5 million of which $22 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, 2022 and 2021 (in thousands):
Noncontrolling interests in discontinued operations
3,067
Real estate-related depreciation and amortization on
continuing operations (a)
28,859
30,122
Real estate-related depreciation and amortization
on discontinued operations
659
Continuing operations: Realized (gains) losses and unrealized (gains) losses
on disposition of rental property, net
Discontinued operations: Realized (gains) losses and unrealized (gains) losses
Funds from operations available to common stock
and Operating Partnership unitholders (b)
17,033
16,385
(a)Includes the Company’s share from unconsolidated joint ventures, and adjustments for noncontrolling interests, of $2,671 and $2,275 for the three months ended March 31, 2022 and 2021, respectively. Excludes non-real estate-related depreciation and amortization of $325 and $325 for the three months ended March 31, 2022 and 2021, respectively.
(b)Net income available to common shareholders for the three months ended March 31, 2022 and 2021 included $2,932 and $413, respectively, of land impairment charges and $2,623 and zero, 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.
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.
In addition, the extent to which the ongoing COVID-19 pandemic impacts us and our tenants and residents will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Moreover, investors are cautioned to interpret many of the risks identified in the risk factors discussed in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2021, as well as the risks set forth below, as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19.
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, 2021. We assume no obligation to update and supplement forward-looking statements that become untrue because of subsequent events, new information or otherwise.
Item 3. Quantitative And Qualitative Disclosures About Market Risk
Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. In pursuing its business plan, the primary market risk to which the Company is exposed is interest rate risk. Changes in the general level of interest rates prevailing in the financial markets may affect the spread between the Company’s yield on invested assets and cost of funds and, in turn, its ability to make distributions or payments to its investors.
Approximately $1.5 billion of the Company’s long-term debt as of March 31, 2022 bears interest at fixed rates and therefore the fair value of these instruments is affected by changes in market interest rates. The following table presents principal cash flows (in thousands) based upon maturity dates of the debt obligations and the related weighted-average interest rates by expected maturity dates for the fixed rate debt. The interest rates on the Company’s variable rate debt as of March 31, 2022 ranged from LIBOR plus 158 basis points to LIBOR plus 340 basis points. Assuming interest-rate swaps and caps are not in effect, if market rates of interest on the Company’s variable rate debt increased or decreased by 100 basis points, then the increase or decrease in interest costs on the Company’s variable rate debt would be approximately $6.6 million annually and the increase or decrease in the fair value of the Company’s fixed rate debt as of March 31, 2022 would be approximately $61.6 million.
Debt,
including current portion
4/1/22 -
Fair
($s in thousands)
12/31/2022
Other (a)
Fixed Rate
61,045
311,403
598,407
(5,855)
1,479,355
Average Interest Rate
3.59
3.43
3.85
Variable Rate
347,083
138,000
(3,849)
(a)Adjustment for unamortized debt discount/premium, net, unamortized deferred financing costs, net, and unamortized mark-to-market, net as of March 31, 2022.
While the Company has not experienced any significant credit losses, in the event of a significant rising interest rate environment and/or economic downturn, defaults could increase and result in losses to the Company which could adversely affect its operating results and liquidity.
Item 4. Controls and Procedures
Disclosure Controls and Procedures. The General Partner’s management, with the participation of the General Partner’s chief executive officer and chief financial officer, has evaluated the effectiveness of the General Partner’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the General Partner’s chief executive officer and chief financial officer have concluded that, as of the end of such period, the General Partner’s disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the General Partner in the reports that it files or submits under the Exchange Act.
Changes In Internal Control Over Financial Reporting. There have not been any changes in the General Partner’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the General Partner’s internal control over financial reporting.
Disclosure Controls and Procedures. The General Partner’s management, with the participation of the General Partner’s chief executive officer and chief financial officer, has evaluated the effectiveness of the Operating Partnership’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, the General Partner’s chief executive officer and chief financial officer have concluded that, as of the end of such period, the Operating Partnership’s disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Operating Partnership in the reports that it files or submits under the Exchange Act.
Changes In Internal Control Over Financial Reporting. There have not been any changes in the Operating Partnership’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.
Part II – Other Information
There are no material pending legal proceedings, other than ordinary routine litigation incidental to its business, to which the Company is a party or to which any of its Properties are subject.
There have been no material changes in our assessment of risk factors from those set forth in the Annual Report on Form 10-K for the year ended December 31, 2021 of the General Partner and the Operating Partnership.
(a) None.
(b) Not Applicable.
(c) Not Applicable.
(a) Not Applicable.
Not Applicable.
The exhibits required by this item are set forth on the Exhibit Index attached hereto.
EXHIBIT INDEX
Exhibit
Number
Exhibit Title
10.1#
Executive Employment Agreement, dated January 11, 2022, by and between Amanda Lombard and Veris Residential, Inc. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 11, 2022 and incorporated herein by reference).
10.2#
Independent Consulting Services Agreement dated as of January 18, 2022 by and between Veris Residential, Inc. and Giovanni M. DeBari (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 24, 2022 and incorporated herein by reference).
10.3#
Amendment to Amended and Restated Executive Employment Agreement dated as of February 1, 2022 by and between Veris Residential, Inc. and David Smetana (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated February 2, 2022 and incorporated herein by reference).
10.4#
Amended and Restated Executive Employment Agreement dated March 28, 2022 by and between Amanda Lombard and Veris Residential, Inc. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated March 30, 2022 and incorporated herein by reference).
10.5#
Independent Consulting Services Agreement dated as of April 19, 2022 by and between Veris Residential, Inc. and Gary T. Wagner (filed as Exhibit 10.1 to the Company’s Amended Current Report on Form 8-K/A dated March 30, 2022 and incorporated herein by reference).
10.6#*
Executive Employment Agreement, dated March 25, 2022, by and between Jeffrey Turkanis and Veris Residential, Inc.
10.7#*
Executive Employment Agreement, dated March 25, 2022, by and between Taryn Fielder and Veris Residential, Inc.
31.1*
Certification of the General Partner’s Chief Executive Officer, Mahbod Nia, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the General Partner.
31.2*
Certification of the General Partner’s Chief Financial Officer, Amanda Lombard, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the General Partner.
31.3*
Certification of the General Partner’s Chief Executive Officer, Mahbod Nia, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the Operating Partnership.
31.4*
Certification of the General Partner’s Chief Financial Officer, Amanda Lombard, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the Operating Partnership.
32.1*
Certification of the General Partner’s Chief Executive Officer, Mahbod Nia and the General Partner’s Chief Financial Officer, Amanda Lombard, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, with respect to the General Partner.
32.2*
Certification of the General Partner’s Chief Executive Officer, Mahbod Nia and the General Partner’s Chief Financial Officer, Amanda Lombard, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, with respect to the Operating Partnership.
101.1*
The following financial statements from Veris Residential, Inc. and Veris Residential, L.P. from their combined Report on Form 10-Q for the quarter ended March 31, 2022 formatted in Inline XBRL: (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Operations (unaudited), (iii) Consolidated Statements of Comprehensive Income (Loss) (unaudited), (iv) Consolidated Statements of Changes in Equity (unaudited), (v) Consolidated Statements of Cash Flows (unaudited) and (vi) Notes to Consolidated Financial Statements (unaudited).
104.1*
The cover page from this Quarterly Report on Form 10-Q, formatted in Inline XBRL.
* filed herewith
# management contract or compensatory plan or arrangement
Pursuant to the requirements of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
(Registrant)
Date:
May 4, 2022
By:
/s/ Mahbod Nia
Mahbod Nia
Chief Executive Officer
(principal executive officer)
/s/ Amanda Lombard
Amanda Lombard
Chief Financial Officer
(principal financial officer and principal accounting officer)
By: Veris Residential, Inc.
its General Partner