Veris Residential Inc. (NYSE: VRE), a real estate investment trust, reported significant operational and financial improvements for the second quarter of 2024. The company's portfolio occupancy reached 95.1%, with notable net rental and net operating income (NOI) growth.
Veris Residential also successfully reduced its debt and revised its core funds from operations (FFO) guidance upwards due to better-than-expected performance. Additionally, the company's AI-based leasing assistant, Quinn, showed impressive results in customer engagement.
Key Takeaways
- Veris Residential's portfolio was 95.1% occupied, with a 5% net rental growth.
- NOI growth was 5.9% for the first half of the year.
- The company reduced its debt by $168 million and secured a $500 million credit facility and term loan.
- AI leasing assistant Quinn converted over 34% of leads and handled over 60,000 messages.
- Veris Residential introduced a rent payment platform, BILT, offering residents reward points.
- The company withdrew its public offering of common stock and the proposed acquisition of 55 Riverwalk Place.
- Net income available to common shareholders was $0.03 per fully diluted share, a significant improvement from a net loss of $0.30 in the previous year.
- Core FFO per share increased to $0.18, and the company raised its core FFO guidance by about 4%.
- Net debt to EBITDA for the trailing 12 months stood at 11.8 times.
Company Outlook
- The company is raising its core FFO guidance range by approximately 4%.
- Veris Residential is revising its same-store expense growth guidance range.
- The company expects no excess cash on deposit in the third quarter.
- Veris Residential may focus on strategic and transformational opportunities rather than incremental accretive transactions.
Bearish Highlights
- There was a drop in core FFO in the third quarter due to one-time items.
- Concerns about unintended signaling led to the withdrawal of the equity offering.
Bullish Highlights
- Higher than expected deposit income was reported due to increased interest rates and cash balances.
- Other income was generated from successful real estate tax appeals.
- The company reported favorable initial indications for insurance costs.
Misses
- The company is unlikely to pursue incremental transactions that would add to the platform in the near future.
Q&A Highlights
- Management discussed the impact of unit renovations at Liberty Towers.
- The team emphasized a capital allocation strategy focused on deleveraging the balance sheet.
- The decision-making process for future development of Harborside 9 remains open.
- Comparisons were made with recent acquisitions by Hines, highlighting the superior quality of Veris Residential's portfolio.
In conclusion, Veris Residential Inc. displayed strong second-quarter performance and is adjusting its strategies to foster long-term growth and value creation. The management team's focus on strategic initiatives, coupled with operational efficiencies, positions the company to potentially enhance shareholder value. The team ended the call by expressing gratitude to their employees and looking forward to sharing future updates.
InvestingPro Insights
As Veris Residential Inc. (NYSE: VRE) shows promising operational and financial improvements, insights from InvestingPro provide a deeper understanding of the company's current valuation and future outlook. With a market capitalization of $1.58 billion, the company is navigating a challenging environment where its short-term obligations surpass liquid assets, indicating potential liquidity risks.
InvestingPro Tips suggest that while net income is expected to grow this year, analysts hold reservations about the company's profitability within the same timeframe. The company's trading at a high EBITDA valuation multiple could signify that investors are expecting high future growth or that the stock is overvalued compared to its peers.
Key metrics from InvestingPro Data reveal:
- A negative P/E ratio of -23.54, adjusting to -15.14 for the last twelve months as of Q1 2024, underlining the company's current lack of profitability.
- Revenue growth of 16.24% for the last twelve months as of Q1 2024, indicating an upward trajectory in the company's sales performance.
- An EBITDA growth of 28.28% for the same period, suggesting operational efficiency improvements.
For investors seeking a comprehensive analysis of Veris Residential, InvestingPro offers additional tips to gauge the company's performance and prospects. By using the coupon code PRONEWS24, readers can enjoy up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, gaining access to valuable insights that can inform investment decisions. There are 5 additional InvestingPro Tips available for Veris Residential at https://www.investing.com/pro/VRE, which could provide further clarity on the company's financial health and market position.
Full transcript - Veris Residential Inc. (VRE) Q2 2024:
Operator: Greetings and welcome to the Veris Residential Inc. Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Taryn Fielder, General Counsel. Thank you, Ms. Fielder, you may begin.
Taryn Fielder: Good morning everyone and welcome to Veris Residential's second quarter 2024 earnings conference call. I would like to remind everyone that certain information discussed on this call may constitute forward-looking statements within the meaning of the Federal Securities laws. Although we believe the estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved. We refer you to the company's press release and annual and quarterly reports filed with the SEC for risk factors that impact the company. With that, I would like to hand the call over to Mahbod Nia, Veris Residential's Chief Executive Officer, who is joined by Amanda Lombard, Chief Financial Officer. Mahbod?
Mahbod Nia: Thank you, Taryn and good morning everyone. The second quarter marked another period of strong operational and financial results for Veris, reflecting continued progress across a number of initiatives aligned with our three-pronged value creation plan. This is reflected in our decision to raise guidance once again, which Amanda will discuss in further detail. As of June 30th, the portfolio was 95.1% occupied and continues to perform well, with 5% blended net rental growth and 5.9% NOI growth in the first half of this year. In an effort to further optimize our balance sheet we secured a new $500 million credit facility and term loan in April and reduced our overall debt outstanding by $168 million during the quarter, primarily utilizing proceeds from nonstrategic asset sales. Looking more closely at our operational performance, same-store occupancy was 100 basis points above March 31 at 95.1% as we continue to seek the optimal balance between occupancy and revenue growth. Our Class A portfolio realized 5% blended net rental growth in the first half of the year continuing to build on two consecutive years of strong growth. Net blended rental growth increased from 4.6% in the first quarter to 5.4% in the second quarter driven by increases of 6.4% in renewals and 4.2% in new leases. Today our properties continue to command a significant rent premium of approximately 40% compared to our industry peers with an average revenue per home of over $3900 an increase of 22% over the last two years, reflecting the quality of our highly amenitized comparatively young vintage of approximately eight years and well located Class A portfolio. Affordability remained healthy with an average rent-to-income ratio of around 12% in the second quarter. Our Port Imperial and Jersey City Waterfront properties continue to outperform the broader portfolio, benefiting from their proximity to Manhattan as well as limited new supply in these submarkets. We've also seen significant improvement in new lease rental growth rates across our East Boston properties, which represents a compelling relative value proposition compared to Downtown Boston and the seaport. We remain focused on our ongoing pursuits of operational excellence, leveraging innovative solutions including new technologies, operational enhancements, and changes to our organizational structure and processes as we seek to identify additional efficiencies and further enhance our platform. These operational efforts have contributed to a steady increase in our operating margin, which now stands at 66%, up from 57% three years ago. Our AI-based leasing assistant, Quinn, continues to be highly effective in capturing demand at the top of our leasing funnel, effectively converting leads while allowing us to realize payroll efficiencies. In the second quarter, Quinn converted over 34% of leads into tours, more than double the industry average, answering over 60,000 messages and saving over 5000 staff hours. In addition we have leveraged our AI capabilities to continue enhancing the resident experience at Veris. Quinn is now available to all residents 24/7 and is capable of answering a wide range of inquiries as well as managing maintenance requests. In June, we introduced a new portfolio-wide rent payment platform, BILT, which allows residents to earn reward points that can be spent on hotels flights restaurants and more with every rent payment. On the capital allocation front, earlier in the quarter, we closed the sale of 107 Morgan Street as well as two land sites, 6 Becker and 85 Livingston in suburban New Jersey, releasing approximately $78 million of net proceeds which was used to repay debt. With our transformation complete, we continue to look for optimization opportunities through capital reallocation within the company. To that end, our $187 million land bank and interest in unconsolidated multifamily joint ventures, remain a considerable source of inefficient equity. The ability to unlock and reallocate some or all of this capital over time has the potential to significantly enhance the company's earnings and leverage profile. One of these land parcels Harborside 9 recently gained approval for future development from the Jersey City Planning Board as part of our pre development efforts to enhance the valuation of our land bank. I'd like to address our decision to withdraw the company's recent public offering of common stock and proposed acquisition of 55 Riverwalk Place. While this strategic and accretive transaction would have strengthened our position in one of our core markets, Port Imperial and further delevered our balance sheet, we decided not to proceed given the unintended signaling that the Board and management team may seek to prioritize external growth at the expense of rather than parallel with a comprehensive spectrum of strategic and organic value-creation opportunities. The primary focus of the management team is the creation of value through the 3-pronged approach we announced at the beginning of the year. In parallel and consistent with past practice, the Board and Strategic Review Committee will continue to evaluate all credible opportunities to maximize value on behalf of shareholders. Before I hand over to Amanda, I'm pleased to show our progress in reducing emissions and earning green certifications. Our Scope 1 and 2 emissions were 66% below our 2019 baseline. We are one of the few companies to measure almost all of our operational Scope 3 emissions which have decreased by 22% from 2022. Simultaneously, we increased the share of green certified buildings in our portfolio to 78%. Our new credit facilities include sustainability KPI provisions which the company successfully met in July and will result in a five basis point margin saving on the facility. With that, I'm going to hand it over to Amanda who will discuss our financial performance and provide an update on guidance.
Amanda Lombard: Thank you, Mahbod. For the second quarter of 2024, net income available to common shareholders was $0.03 per fully diluted share versus a net loss of $0.30 for the same period in the prior year. Core FFO per share was $0.18 for the second quarter compared to $0.14 last quarter and $0.16 for the second quarter of 2023. Core FFO this quarter is up $0.04 compared to the first quarter, driven primarily by three factors, including the receipt of the annual early tax credit of $2.6 million, an additional $1 million in interest income from cash on hand and another $1 million from the recognition of a successful real estate tax appeal for Harborside 1 2 and 3 which we sold last year. Excluding nonrecurring interest income and sold office NOI, our core FFO is broadly in line with the first quarter. Same-store NOI growth for the six months ended June 30, 2024 was 5.9%. For the quarter, same-store NOI was off by 1.4% in line with our expectations, as we lapped the recognition of the successful real estate tax appeals on two Jersey City assets. Normalizing NOI for the impact of the appeals, same-store NOI growth would have been 3% for the quarter and 8% year-to-date. On the revenue side, year-to-date same-store revenues are up 6.9%, driven by continued strong rental revenue growth. Excluding the impact of a retail lease termination fee recognized over the first half of 2024, same-store rental income growth would have been approximately 6%. This quarter, we have begun to take units offline at Liberty Towers, as we commence renovations as part of our value-add project, which will have a temporary impact on NOI in the coming quarters. This is reflected in our updated guidance which I will discuss momentarily. Moving to the expense side of the equation. Total property expenses were up 8.8% year-to-date, in line with our guidance and expectations, as we lapped the recognition of the 2023 tax appeal. Normalizing total property expenses to exclude the impact of these appeals would have resulted in 5% expense growth. Controllable expenses are up year-to-date 4.7%, as the second quarter saw a higher volume of lease turns driven by Haus25 as it reached the anniversary of its stabilization and the first-generation leases expired. These costs are offset by the impact of various portfolio optimization initiatives such as the centralization of leasing roles, as well as our increased utilization of AI-based solutions, which has contributed to flat year-over-year payroll expenses. Turning to G&A. After adjustments for noncash stock compensation and severance payments, core G&A was $8.7 million, an improvement of 8%, primarily due to lower compensation-related costs in the second quarter. Now onto our balance sheet. As of June 30, nearly all of our debt was fixed and/or hedged with a weighted average maturity of 3.1 years and a weighted average effective interest rate of 4.5%. Our net debt to EBITDA for the trailing 12 months is 11.8 times. As noted last quarter, in April, we closed on a new $500 million senior secured delayed draw term loan and revolver with a 3-year tenure and a 1-year extension option. During the quarter, we repaid two mortgages for $219 million and drew $55 million on the new term loan. Concurrently, we entered into a 3.5% strike 2-year interest rate cap to hedge the full notional. We also replaced an expiring cap on our RiverHouse nine mortgage with another 3.5% strike 2-year rate cap. Two additional mortgages will mature this year and as each mortgage becomes eligible for repayment, we will draw first from the term loan and then partially on the revolver. As Mahbod mentioned, we are raising our core FFO guidance range by approximately 4% or $0.02 to $0.52 to $0.56 per share, reflecting the impact of two nonrecurring items including $0.01 of greater than projected deposit income as a result of higher interest rates and average cash balances in the second quarter as asset sales closed sooner than anticipated, and $0.01 of other income as a result of the recognition of successful real estate tax appeals, net of recoveries on the sold Harborside office properties. We are also revising our same-store expense growth guidance range from 5% to 6% to 4.5% to 5.5%, reflecting favorable initial indications for insurance and real estate taxes, which will reset in the second half of the year as well as additional cost savings from continued operational initiatives. Our improved expectations for expenses support an increase in the bottom end of our same-store NOI range from 2.5% to 3%. The top end of guidance remains unchanged at 5% as we are expecting to commence unit renovations on our value-add project at Liberty Towers and expect some temporary impact on NOI as we discussed earlier. As we round out another strong quarter, Veris represents an extremely compelling value proposition the highest quality and newest class A multifamily properties located in established markets in the Northeast, commanding the highest average rent and growth rate among peers with limited near-term supply and high barriers to entry managed by our vertically integrated best-in-class operating platform. With that operator, please open the line for questions.
Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] The first question comes from the line of Josh Dennerlein with Bank of America (NYSE:BAC). Please go ahead.
Steven Song: Hi. This is Steven Song on for Josh. Thanks for the time. And the first question I have is on the July leasing updates. Do you have a number for the blended new and renewal?
Mahbod Nia: Good morning. Thank you for the question. We do. I would say it's a touch above the mid-single digit, so around about 6% for July.
Steven Song: So that's blended, right?
Mahbod Nia: 6% blended. There's been a skew, obviously, towards renewals over new leases although that gap has narrowed since the beginning of the year. But yeah around 6% is where we're expecting to land up this month.
Steven Song: All right. Got it. Thanks. And then my second question is on the same-store expense guidance. In the supplemental you said there is a favorable initial indication of insurance and real estate taxes. Can you maybe provide more color on that? What do you see on the two fronts?
Mahbod Nia: Yeah, it's a little bit early especially on the tax side because there we don't really have clarity until the latter part of Q3. But certainly given what we've seen in terms of increases in the tax rate, particularly the year before last we would expect that hopefully to be not as material as it has been. On the insurance side, I think we've built in an assumption into guidance that again reflected where we've seen insurance premiums go over the last couple of years. And certainly looking at some of the peers and what they've been experiencing and some initial indications or an initial indication rather I should say for ourselves, the number seems to be surprising to the upside this year. And so we've made a minor adjustment to reflect that.
Steven Song: Okay, got it. Thank you. That’s all for me.
Mahbod Nia: Thank you for question.
Operator: Thank you. Next question comes from the line of Steve Sakwa with Evercore ISI. Please go ahead
Unidentified Analyst: Hi. Good morning. This is Sanket [ph] filling in for Steve. As you mentioned that the blended lease rates for July you're passing in touch above mid-single digits. And then you've done 7% revenue growth in the first half of the year. And you are now guiding to 4.5% in terms of same-store revenue growth. Can you help us think through what you're thinking in terms of second half of the year, the expectations around second half of the year for the revenue?
Amanda Lombard: Sure. Thank you for the question. So for this quarter we posted year-to-date revenue growth of 6.9%. And in there, there are two one-time items in the first half of the year. So we had termination fee income, which we recognized throughout the first half. And then we also had in the first quarter, Haus25 as we noted last quarter lapped the period when it was stabilizing. And so those two factors together combined represent about 250 basis points of the revenue growth that we're posting right now. And so if you back that out of the 6.9% you get to about 4.3%, which is right in the middle of our guidance range.
Unidentified Analyst: Okay. And then on the expense side, R&M and property taxes which are like major components of your expenses they've grown a lot in the first half of the year. How should we think about that in the second half of the year?
Amanda Lombard: So for R&M that is elevated this quarter. As I just said, house stabilized in the first quarter of last year. And so as a result, we had an elevated amount of leases. It was like roughly 25% of the leases that turned in the first quarter. And so there is a higher number of leases turning overall for the portfolio. And that drove up turn costs which go through repair and maintenance in the second quarter. So that's what's driving that. I think as you look into the second half of the year for that line item you should see a more normalized figure. And then in terms of real estate taxes as Mahbod just said that resets in the second half of the year in the third quarter for us. And so when we know more we'll have more to share there.
Unidentified Analyst: Okay. Thank you. That’s it for me. Thank you.
Mahbod Nia: Thank you.
Operator: Thank you. Next question comes from the line of Eric Wolfe with Citi. Please go ahead.
Eric Wolfe: Hi. Thanks. Can you talk about what's driving the sequential drop in core FFO between the second quarter and the third quarter? It looks like you're expecting around a $7 million drop based on your guidance. So just want to confirm that. And then if you could maybe point out the items that are taking you down by $7 million that would be helpful? Thanks.
Amanda Lombard: Sorry, can you repeat the question again?
Eric Wolfe: Yes. Hopefully, you can hear me. But based on your guidance there's a drop in the third quarter in core FFO from the second quarter. And so I was trying to understand what is causing that drop. It looks at around $7 million based on your guidance?
Mahbod Nia: Eric, can you. Sorry, ahead, Amanda.
Amanda Lombard: So in the second quarter of core FFO, we have $4 million roughly or $0.04 of one-time items that occurred. About $2.6 million of it is related to the early [ph] tax credit. That's reoccurring. We recognize it every year, but it's all recognized in this quarter. And then the other two items that we're seeing are $1 million related to higher interest expense from having higher cash balances. And then -- we expect to have no excess cash on deposit in the third quarter as we've utilized all of our cash for debt repayment. And then the other factor is real estate tax appeals. We had a successful resolution there for some of the sold Harborside assets. And so that was recognized in this quarter as well.
Eric Wolfe: Okay. Why would interest expense go up in the third quarter? I guess, I would think that you held on cash longer presumably paid off debt later that would make interest expense go down relative to the quarterly run rate. And then I guess just second part of the question is you're guiding kind of like $0.11 per quarter. Is that like the right run rate to think about going into the next year? Or is there something that would cause that to go up in the first half of next year? I guess you mentioned $0.04 that you see on a recurring basis each year in the first half that you don't see in the second half.
Amanda Lombard: Okay. So first off, interest income is the driver of the $0.01 variance for this quarter. And that's non-interest expense. And then in terms of your question on – okay, hold on one second. Yes. And then in terms of the remainder of the year we haven't provided any guidance. So I don't have anything to say on the run rate for next year. And Mahbod if you want to add anything.
Mahbod Nia: Yes. So just to add I think as Amanda said we had a number of one-time items that meant that this quarter looks particularly strong and we reflected the full year guidance to reflect that. But early tax credit interest income on cash balances that were higher than initially expected because we sold on strategic assets or competed those sales sooner than expected. And then rates also that we earn on that cash on deposit remained higher for longer. And then we had the successful tax appeals. And so that's all what really made this quarter particularly strong at the $0.18. But on the revenue side, we reiterate the guidance that we put out there last quarter. And I think that's still very much reflects on a full year basis our current expectations of the operational outlook for the business. Where this has an impact is a slight impact on the expense side which we've talked about that just given early indications of where we think insurance will come out in particular. And then on the core FFO per share basis where you're seeing really just a direct increase of $0.02 reflected to those one-time items that I mentioned.
Eric Wolfe: Okay. That's helpful. And then I'm thinking about future acquisitions or opportunities to deleverage through equity-funded transactions. I mean, has your thinking changed there at all going forward? Is it off the table? Will you require a larger spread? Just trying to understand if your thoughts have changed sort of how it's informing your strategy going forward?
Mahbod Nia: Yes. Look, I think certainly, and in my remarks earlier, I mentioned that while there are many merits to this particular transaction. It's highly strategic. It was opportunistic. We actually built the asset and used to manage it until recently. It was accretive and would have allowed us to delever by about a turn. We made the decision not to move forward, because while incrementally enhancing the value of this entity through an improvement in all the metrics that I just mentioned, it was incremental and also seemed to provide this unintended signaling that we maybe prioritizing growth at the expense of but not in parallel necessarily with the wide spectrum of value creation opportunities that the Board evaluates on a real-time basis as opportunities to continue creating and maximizing value for shareholders. So I think that said it's unlikely that we would pursue transactions that incrementally are accretive to the platform going forward at this time.
Eric Wolfe: Yes. Got it.
Mahbod Nia: Another way of saying, sorry, if we did anything it's more likely to be, let's say, strategic and more transformational. But that’s the management to decide.
Eric Wolfe: Understood.
Mahbod Nia: Thanks Eric. Thanks.
Operator: Thank you. Next question comes from the line of Tom Catherwood with BTIG. Please go ahead.
Tom Catherwood: Thank you. Good morning, everybody. Mahbod, let me start with you and this ties to your response to the former question. But you mentioned approvals at Harborside 9 recently. Are you evaluating the potential for further near-term investment at that site? And are there other assets in your land bank where you're pursuing entitlements to get them shovel-ready?
Mahbod Nia: Good morning, Tom. Good question. The announcement on Harborside 9 was really -- and I think got a bit of media attention, because it's a larger and quite a prominent site. I'd say, Harborside 8 and 9 are probably the best two remaining land sites in Jersey City. That was the result of the work that the team has been doing for the past well forever actually but certainly, since I've been at the helm over the last three or four years across all of our land sites progressing along that path to get them to a point where they're shovel-ready, because obviously, every stepping stone along that path is enhancing to the value of the land and preserving or enhancing to the value of that land. And so that's all that was, but I wouldn't necessarily read into it as any decision having been made with regard to potential future development of that site or any other sites. We do that work across all of the land sites that we own. It's a balancing act in terms of the cost involved and value created, but it's something that we do on a very much ongoing basis.
Tom Catherwood: Got it. Understood. And then, in July it looks like Hines acquired two multifamily assets in Jersey City. Do you have a sense of how those compare to your waterfront portfolio assets?
Mahbod Nia: Yes. In what sense? In terms of quality or...
Tom Catherwood: Yes. In terms of quality, in terms of amenities, in terms of occupancy, any of those things as we look as a comparable to Veris's portfolio?
Mahbod Nia: Yes. Look, I do think on the whole, we do have newer higher-quality properties within certain instances like Haus25 an unrivaled amenity offering. And so, I think when you put that all together and then location-wise as well, when you factor age amenity offering, the quality of service and management that the team tirelessly provides, I would say, it's a better product across the portfolio on the whole. Those are slightly older. I understand that there is some of the upside there for Hines isn't actually on the management side of things to extract more from those assets, but I think they're going to require a little bit more attention in terms of investment and management.
Tom Catherwood: Got it.
Mahbod Nia: You're referring to Lenox and Quinn.
Tom Catherwood: Yes. That was exactly those. Thank you for that. And then the last one for me. Amanda and I apologize if you mentioned this and I missed it, but how much of a drag are you expecting at Liberty Towers, now that you're taking some units offline for those renovations? And was that drag in the initial 2024 guidance or was that an update with the 2Q results?
Amanda Lombard: Thanks, Tom. So I guess I'll answer the second part first. So that was not included in our initial guidance. And then we're assuming that approximately 30 units are offline. We just started doing that so there's no impact really in Q2 and 30 units offline on average.
Tom Catherwood: Got it. That’s it for me. Thanks, everyone.
Mahbod Nia: Thanks, Tom.
Operator: Thank you. Next question comes on the line of David Segall with Green Street. Please go ahead.
David Segall: Hi. Thank you. I'm curious if you can help quantify the prospective returns that you're underwriting for these unit renovations at Liberty Tower.
Mahbod Nia: Good morning. Yes absolutely. It's quite an extensive renovation involving bathroomm kitchen, flooring and the return we're projecting on that is a high-teens return. And that's just looking at rents in the vicinity across both our properties and other properties that are more competitive. That is our oldest building that we own and it's not necessarily racking those rents up to the same level as a newer property such as say Haus25. Far from that but it's just closing the gap somewhat. And that's what gets you to your high-teens return.
David Segall: Thank you. And similarly as you evaluate your land bank and opportunities there, what hurdle rate do you think about for those opportunities?
Mahbod Nia: Well, I think when you're looking at capital allocation opportunities, it's always about the relative return versus the risk that you're taking. And so there's a certain operational financial risk that comes with development. And so when we're contemplating development as a potential, capital allocation, alternative, the relevant things you would look at are first of all just does development make sense? You've seen nationally development has significantly slowed down and there are reasons for that in elevated construction costs, elevated financing costs that are making it more and more challenging to develop to a yield on cost that reflects a healthy premium over stabilized yields, particularly given those stabilized yields have also widened with interest rates. And so the first thing is does it make sense to develop? And then the second thing is does it make sense for us as a public company? Is that a good use of capital? And the things you would think about there would be you're tying up capital for the best part of four years even for something that's shovel-ready today and so you're not going to get any credit for that. It's not going to help your leverage metrics. It's not going to help your earnings metrics. But then ultimately if successful it would be accretive to earnings and NAV. And so those are the sorts of discussions that we have with the Board as and when capital frees up and is available to be allocated to a higher and better use. And development I would say is one option but there are many options and alternatives available to us for capital. So far, the primary use of capital as you've seen and we've sold $2.5 billion in non-strategic assets over the last three or so years. It's been deleveraging, where we've taken leverage down from what was at one point 18.8x and that was excluding Rockpoint which was another $500 million on top of that. And really, it could have been regarded as -- if that should have been regarded as debt you would have been at 23x 24x. We've taken it down to just under 12x now. And so primary use has been so far the repayment of debt and the deleveraging and derisking of the balance sheet.
David Segall: Great. Thank you.
Mahbod Nia: Thank you.
Operator: Thank you. Next question comes from the line of Michael Lewis with Truist Securities. Please go ahead.
Michael Lewis: Yeah. Thank you. So Mahbod, you gave a very balanced and fair response about pulling this equity offering. I'm going to ask it more bluntly, right? So you identified an accretive deal. It would have lowered the company's leverage. You know the asset extremely well. I would argue this is a business where scale matters, right? You look at any small cap apartment REIT their G&A as a percentage of revenue, you're at a disadvantage from an efficiency standpoint generating cash flow. And yet the deal got pulled. You didn't do it. You talked about signaling. Is the signal here that your hands are tied as far as no acquisitions no development? Do you feel that your investors don't want you to try to be a successful ongoing entity? And what does this mean? Does the Board start a more formal strategic review? I'm wondering about the path forward now.
Mahbod Nia: Well, look our job Michael as a management team is to continue focusing on the creation of value at the entity level. And that really takes us back to the 3-pronged approach to value creation that we laid out at the beginning of the year: capital allocation, portfolio and platform optimization and balance sheet optimization. We've dug into each of those privately, publicly. There are multiple initiatives and prongs there that are real and that allow us to keep enhancing the value of what we've got organically. I think probably the lesson taken away and it's from a subset of investors who said there was an unintended signaling that perhaps the Board and management team may be prioritizing external growth at the expense of not in parallel with evaluating a full spectrum of alternatives both organic and strategic for the company to continue creating and maximizing value. So I think that misunderstanding, and it was a difficult decision probably led to us feeling that a transaction like this that albeit, took us in the right direction on all the key metrics it did so incrementally. And so, it probably wasn't worth the confusion that it may cause, all the mis-signaling that it may result in. And so, I think the takeaway is and it's for the Board to decide and the Strategic Review Committee to decide what's right for the company at any point in time strategically, but I think it's more likely to be something more transformative than an incremental transaction.
Michael Lewis: Okay. I understand. No other questions for me. Thanks.
Mahbod Nia: Thank you, Michael.
Operator: Thank you. Ladies and gentlemen, we have reached the end of question-and-answer session. I would now like to turn the floor over to Mahbod Nia for closing comments.
Mahbod Nia: Thank you everyone for joining us today. I'd like to particularly thank our team across the board, our employees who work tirelessly to develop another or generate another quarter of incredible results for our company and we look forward to updating you again in due course. Thank you.
Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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