Mack-Cali Realty Corp

F:WY4

Earnings Call Analysis

Strong Financial Performance and Increased Guidance

Veris Residential posted strong financial results for Q2 2024, with net income per share rising from a loss of $0.30 to a gain of $0.03 compared to last year. Core Funds from Operations also increased by $0.04 to $0.18 per share. The occupancy rate improved to 95.1% and blended net rental growth hit 5%. The company raised its full-year guidance, expecting Core FFO per share between $0.52 and $0.56 and same-store NOI growth of 3% to 5%. Notable achievements include securing a $500 million credit facility, reducing debt by $168 million, increasing green certified buildings to 78%, and making substantial progress in emissions reductions.

Strong Financial Performance Drives Core FFO Growth

In the second quarter of 2024, Veris Residential reported core Funds From Operations (FFO) per share of $0.18, a notable increase from $0.14 in the last quarter and a rise from $0.16 a year ago. This growth was propelled by several factors including a $2.6 million annual early tax credit, $1 million in interest income from cash on hand, and an additional $1 million attributable to successful real estate tax appeals related to properties sold last year. However, excluding these one-off benefits, core FFO remained steady, indicating consistent operational performance amid fluctuations.

Revenue Trends and Same-Store NOI Growth

Veris reported a year-to-date revenue growth of 6.9%. Notably, this figure includes certain one-time income items that contributed approximately 2.5% to the growth. Normalizing for these excludes a retail lease termination fee and equates to an underlying revenue growth of approximately 4.3%, which is comfortably within the guidance range. Same-store Net Operating Income (NOI) for the first half of 2024 rose by 5.9%, but the second quarter saw a decline of 1.4% primarily reflecting the impact of previously recognized tax appeals. Without these appeals, NOI would have shown a healthier growth of 3% for the quarter.

Operational Challenges and Future Guidance

As a key operational initiative, Veris has begun renovating certain units at Liberty Towers, impacting current NOI. This strategic move is part of a larger value-add project, with management advising that NOI will be temporarily affected going forward. Full-year guidance for same-store revenue growth has been set at 4.5%, while the same-store NOI growth range was revised upwards from 2.5%-3% to 3%-5%, reflecting improved expectations for expenses.

Expense Management and Future Outlook

On the expense side, total property expenses have grown by 8.8% year-to-date, which aligns with the company's guidance. However, excluding the effects of the previously noted tax appeals, normal growth would be around 5%. Management attributed increased costs to various operational initiatives but indicated that controllable expenses show a modest growth of 4.7%, supported by innovations in AI usage that have helped maintain flat payroll costs year-over-year. Overall, the company has optimized its capital allocation, repaying $168 million in debt, which improved its leverage from 18.8x debt to EBITDA down to 11.8x.

Strategic Focus Amidst Market Conditions

Veris has maintained a strategic focus on organic growth while evaluating market opportunities to enhance shareholder value. The decision to withdraw from a recent public offering, despite it being strategic and accretive, reflects a cautious approach to avoid signaling a prioritization of external growth over sustainable internal value-creation methods. The company’s management underscores a commitment to organic enhancements through operational excellence, capital allocation efficiencies, and a disciplined approach to new developments.

Impressive Portfolio and Rental Trends

The portfolio's occupancy was at an impressive 95.1% and demonstrated a blended rental growth of 5% in the first half of the year, securing a considerable rent premium compared to peers. As of recent updates, blended lease rates for July indicate growth of around 6%. This reflects Veris’s strong position in established Northeast markets, particularly around Port Imperial and Jersey City, where limited new supply continues to favor rental growth.

Sustainability and Governance Practices

From an environmental standpoint, Veris has made significant strides in reducing emissions, achieving a 66% reduction in Scope 1 and 2 emissions compared to 2019 levels. The company has also enhanced its commitment to sustainability by increasing the percentage of green certified buildings to 78%. This proactive stance not only meets current compliance but positions the company favorably amongst investors who prioritize environmental sustainability.

Conclusion: A Compelling Investment Proposition

Veris Residential stands out as a compelling investment proposition, emerging from a strong financial performance underpinned by effective operational strategies. As they navigate renovation projects and maintain a disciplined approach to capital management, the long-term outlook remains positive—propelled by strong revenue growth, improvements in operating margins, and an unwavering focus on sustainability. Investors looking for solid growth backed by a robust portfolio in high-demand markets may find Veris a worthy consideration.

Earnings Call Transcript 2024-Q2

[Operator]

Greetings and welcome to Veris Residential, Inc. Second Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Taryn Fielder, General Counsel. Thank you. Ms. Fielder, you may begin.

[Taryn Fielder, executive]

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 law. Although we believe the estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved. We refer you to the company's press release and annual and quarterly reports filed with the SEC for risk factors that impact the company.

With that, I would like to hand the call over to Mahbod Nia, Veris Residential's Chief Executive Officer, who is joined by Amanda Lombard, Chief Financial Officer. Mahbod?

[Mahbod Nia, executive]

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 3-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 30, 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 2 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 $3,900, an increase of 22% over the last 2 years, reflecting the quality of our highly amenitized, comparatively young vintage of approximately 8 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% 3 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 5,000 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 2 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 5 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, executive]

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 3 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 6 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 2 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 30th, 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 11.8x. 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 2 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 9 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 2 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]

[Operator Instructions] The first question comes from the line of Josh Dennerlein with Bank of America.

[Huainan Song, analyst]

This is Steven Song on for Josh. 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, executive]

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.

[Huainan Song, analyst]

So, that's blended, right?

[Mahbod Nia, executive]

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 yes, around 6% is where we're expecting to land up this month.

[Huainan Song, analyst]

All right. 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 2 fronts ]?

[Mahbod Nia, executive]

Yes, 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.

[Operator]

Next question comes from the line of Steve Sakwa with Evercore ISI.

[Unknown Analyst]

This is [ Sanket ] 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, executive]

So for this quarter, we posted year-to-date revenue growth of 6.9%. And in there, there are 2 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 2 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.

[Unknown 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, executive]

So, for R&M, that is elevated this quarter. As I just said, Haus 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.

[Operator]

Next question comes from the line of Eric Wolfe with Citi.

[Eric Wolfe, analyst]

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.

[Amanda Lombard, executive]

Sorry, can you repeat the question again?

[Eric Wolfe, analyst]

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.

[Amanda Lombard, executive]

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 ] tax credit. That's reoccurring. We recognize it every year, but it's all recognized in this quarter. And then the other 2 items that we're seeing are $1 million related to higher interest expense from having higher cash balances. And 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, analyst]

Okay. Why would interest expense go up in the third quarter? 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, just second part of the question is, you're guiding to 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, executive]

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 -- hold on 1 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, executive]

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, analyst]

Okay. That's helpful. And then I'm thinking about future acquisitions or opportunities to deleverage through equity-funded transactions, 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, how it's informing your strategy going forward.

[Mahbod Nia, executive]

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 may be 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. Another way of saying, sorry, if we did anything, it's more likely to be, let's say, strategic and more transformational. But [indiscernible].

[Operator]

Next question comes from the line of Tom Catherwood with BTIG.

[William Catherwood, analyst]

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, executive]

Tom, good question. The announcement on Harborside 9 was really 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 2 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 3 or 4 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.

[William Catherwood, analyst]

Got it. Understood. And then in July, it looks like Hines acquired 2 multifamily assets in Jersey City. Do you have a sense of how those compare to your waterfront portfolio assets?

[Mahbod Nia, executive]

Yes. In what sense? In terms of quality or...

[William Catherwood, analyst]

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, executive]

Yes. Look, I do think on the whole, we do have newer, higher-quality properties, with in 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.

[William Catherwood, analyst]

Got it

[Mahbod Nia, executive]

You're referring to Lenox and Quinn.

[William Catherwood, analyst]

Yes. That was exactly those. 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 '24 guidance, or was that an update with the 2Q results?

[Amanda Lombard, executive]

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.

[Operator]

Next question comes on the line of David Segall with Green Street.

[David Segall, analyst]

I'm curious if you can help quantify the prospective returns that you're underwriting for these unit renovations at Liberty Tower.

[Mahbod Nia, executive]

Yes, absolutely. It's quite an extensive renovation involving bathroom, 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, analyst]

And similarly, as you evaluate your land bank and opportunities there, what hurdle rate do you think about for those opportunities?

[Mahbod Nia, executive]

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 4 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 1 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 nonstrategic assets over the last 3 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.

[Operator]

Next question comes from the line of Michael Lewis with Truist Securities.

[Michael Lewis, analyst]

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, executive]

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.

[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, executive]

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.