Good day, everyone, and welcome to the Mack-Cali Realty Corporation Second Quarter 2019 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Michael J. DeMarco, Chief Executive Officer. Please go ahead, sir.

Good morning, everyone, and thank you for joining the Mack-Cali Second Quarter 2019 Earnings Call. This is Mike DeMarco, CEO of Mack-Cali. I am joined today by my partners, Marshall Tycher, Chairman of Roseland, our multifamily operation; David Smetana, our CFO; and Nick Hilton, our EVP of Leasing. On a legal note, I must remind everyone that certain information discussed in 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 our press release, annual and quarterly reports filed with the SEC for risk factors that could impact the company. We have filed our supplemental this quarter. As always, please contact my partner, David, with any further suggestions. As we have done before, we're going to break our call down into the following sections. I will make some opening comments, Nick will discuss our office leasing performance and our view of the markets going forward, Marshall will provide insight into our multifamily operations, David will recap our operating results and I will close with some comments before we take questions. We had another successful operating quarter as we delivered positive results for the quarter. We had a great deal of transaction activity that we completed on plan regarding sales, financings, our equity raise from Rockpoint and finished the Marriott Hotel at Port Imperial, which opened last month and is doing quite well. Our [ thought-out ] teams continue to perform at the highest level. This quarter's combined with last quarter's activity in transactions is allowing us to execute our vision. Our office leasing results so far for 2019 were expected regarding total amount of square foot leased…

Thank you, Mike. Across our portfolio, we posted another solid quarter in Q2 2019, signing just over 226,000 square feet of transactions, resulting in our core and Waterfront portfolios finishing at 79.8% leased at quarter end. Of these transactions, approximately 31% or 71,000 square feet were new leases and 69% or 155,000 square feet were in-place renewals. Across all core markets, our rents on Q2 deals rolled up 8.7% on a cash basis and 17.7% on a GAAP basis, and we committed $5.31 per square foot per year of lease term. As we turn our focus to the specific markets, the Waterfront leasing numbers were light by any measure. However, we have approximately 150,000 square feet of new transactions currently in leases, which were not closed by quarter's end. Of the 18,000 square feet that was completed, we continue to see a positive rent push with increases of 10.8% on a cash basis and 16.4% on a GAAP basis. Although there are many factors that can delay the negotiations of a lease agreement, we did see a noticeable slowdown in response timing and even initial inquiries since the sunset of the Grow New Jersey tax incentive program in June of this year. We believe that the lack of clarity on the cost to occupy office space here in New Jersey has delayed the responsiveness of tenants in the Waterfront office market. As Mike can attest, we're in regular contact with our representatives in Trenton and believe there is motivation to get a new program in place, however, the form of which is still uncertain. To be clear, the tenants that are in leases right now have not had their desire to be in this market derailed but simply have needed more time to forecast their occupancy cost before signing a multimillion dollar lease obligation. On a brighter note, our suburban portfolio had a strong second quarter. Specifically, we executed over 195,000 square feet of transactions. One of the most significant included the renewal and 55,000 square foot expansion of Ferraro Foods in Parsippany. Future activity also remains strong as we are in active negotiations with approximately 125,000 square feet of new tenants across our suburban portfolio. With that, I'd like to turn the call over to Marshall.

Thanks, Nick. Roseland's portfolio continues to experience growth in both NAV and cash flow. As detailed on Page 7 of the supplemental, we estimate a residential NAV of $2.2 billion. Roseland's share of this calculation, net of Rockpoint's ownership, is $1.75 billion. Reflecting the continuous improvement of the portfolio, 69% of the NAV is along the Hudson River Waterfront and 77% of NAV is in operating or in construction assets. Moreover, strategic transactions in the second quarter are aligned with our geographic focus. In April, the company closed on the acquisition of Soho Lofts for $264 million, a 377-unit community in Jersey City's emerging Soho West neighborhood just south of the Hoboken border. This asset was subsequently encumbered with $160 million mortgage and is currently over 97% leased. In May, the company closed on 107 Morgan. We are finalizing approvals for an approximate 800-unit development in one of Jersey City's prime submarkets. And in June, the company executed an agreement to acquire Liberty Towers, a 648-unit community in Jersey City's Paulus Hook neighborhood. The $409 million acquisition with associated financing is scheduled to close in the late third quarter. In the second quarter, we completed a series of financings, including a follow-on investment with the Rockpoint Group. The Rockpoint investment allows for up to $200 million in additional equity of which $100 million was funded at closing. Operationally, Roseland's 5,673-unit same-store portfolio experienced a 5.1% increase in NOI over second quarter 2018 on a GAAP basis. NOI growth was spearheaded by revenue growth of 4.4%. This portfolio has finished second quarter at 97.6% leased as compared to 96.3% leased last quarter. The same-store portfolio excludes 1,212 units delivered in 2018. This portfolio is currently 99.8% leased and was delivered at 6.5% yield on cost. It is forecasted to produce stabilized…

Thanks, Marshall. I have a few brief highlights before turning the call back over to Mike. The quarter largely fell in line with our expectations on the office side with slightly better operational performance in our multifamily division. We reported core FFO per share for the quarter of $0.40 versus $0.50 in the prior year. The year-over-year decrease is due mainly to move-outs of tenants on the Waterfront and lost NOI from asset sales executed as part of our disposition program. Cash same-store NOI in our office portfolio declined by 7.3% and GAAP same-store NOI declined by 0.6% in the second quarter. Year-over-year declines, once again, are negatively impacted by move-outs in our Waterfront portfolio and positively affected by reduced real estate tax expense. We still see GAAP same-store NOI turning positive in the fourth quarter this year as we begin to anniversary quarters that have been fully impacted by the 2018 Waterfront move-outs. As mentioned by Marshall, residential same-store NOI improved by 5.1% this quarter with Boston remaining extremely strong, along with our newer properties in Jersey City. As Marshall noted, renovations of lobbies and units are now fully underway at both Monaco and Marbella, and there were 61 units in total offline for renovation at quarter end, all within our same-store pool. I'll now highlight a couple of transactions that took place in the quarter. We disposed of our last office asset in the Paramus market for a $42 million gross sales price, bringing our total dispositions to date, excluding the Flex sale, to $152 million. We currently have approximately $155 million of commercial assets in various stages of marketing and therefore, are increasing the midpoint of our 2019 disposition guidance by $33 million. The remaining sales will be weighted towards the fourth quarter of this year with…

Thanks, David. In closing, as my colleagues have outlined, we continue to believe that we're set up to have a solid 2019 from an execution point of view with the results showing up in 2020 and beyond. Our focus, as Marshall and Nick and David have outlined, is almost 100% on the Waterfront, which really means growing our multifamily business. For example, we intend to exit our D.C. joint ventures, the land sites in Philadelphia, land sites in suburban New Jersey to either pay down debt and fund our development. Additionally, we're in the process of selling a portion of our Boston assets and in the process of possibly purchasing a large New Jersey multifamily to replace that cash flow. We're very excited about our operating portfolio, and we'll continue to grow with excellent new projects. The key is really creating a sense of place on the Waterfront, which I guess we'll outline in comments and questions in a few minutes. I'm confident that the total effect of our coordinated efforts on office retail multifamily will produce excellent returns in the short and long term. With that, I'd like to take some questions. Operator, first question, please.

[Operator Instructions] And we'll take our first question from Emmanuel Korchman with Citi.

Mike, you talked about the tax credit or the incentive package weighing on the Waterfront leasing, but it sounds like things in the suburbs are actually going okay. So I just wondered, what's different about the companies looking at the Waterfront? And what other options are they looking at that the incentive package would be so meaningful to them that tours are going to stop there versus the rest of sort of the market or the portfolio?

Great question, Manny. The New Jersey breaks 2 ways. If you look at where the incentives were actually used, they're primarily used in Camden for the tenants coming out of Philadelphia and in the Hudson County market for tenants coming out of New York. That's like 85%. Occasionally, you get someone going to Parsippany maybe in a drug corridor. Teva basically was announced coming out of the Pennsylvania market to come into the Morris County area. But 85% of the incentives are used either in the areas adjoining New York City, including -- by the way, you can look at the Alpine, Englewood area that attracted corporate tenants over the years, as I think about my comment, and primarily, Camden. So the tenants we're seeing in Central, New Jersey, whether it's Metropark in Parsippany and Short Hills, are really tenants that are based in New Jersey that are looking to expand and relocate. And we've been getting more than our fair share of the tours, and we think we have a good chance of getting more than our fair share of deals.

And I guess just on the Waterfront piece of that, are those then new to market tenants? And if they say, "Hey, look, we're not going to deal with this. We're not going to wait for these incentive packages," and incentive packages don't come, where do they end up?

I think what -- I think the game that people are playing or the way the strategy works is, previously, they would go do all the work, apply to New Jersey and get the incentive. Now Governor Murphy has been basically tough on getting new incentives, and he says, "I really want to make sure that you're the right type of person coming, and you're really going to expand," so on and so forth. So the state's been doing a series of audits, which have been well publicized in the papers. So we're seeing tenant demand from tenants in New Jersey already or guys relocating on the Waterfront to begin with. So there's a lot of large corporate guys that come up. They've been in the building for 15 years. They don't want to restack in place, but they like the operational base of Jersey City, so they move to another building. We have a number of those tours. We still have others who we work with, which we've announced previously, which we're finalizing, which is a decent size deal. And then we have a bunch of smaller deals, so 5 and 10 and 15, from people who chose regional locations and aren't that incentive-based. But the guy who wants to move over 300,000 square feet, the incentives are worth $8,000 per job. And 300,000 square feet, you could have almost 2,000 jobs. It's a big number. And that number, they'll play it to, they'll say, "You know, we want to know the incentives are there and we want to go in, make sure that we get our incentives." It's more of a corporate strategy.

All right, got it. And then just quickly switching to dispositions. You mentioned that you're going to use proceeds to pay down debt. But at the same time, you might have 1031 issues or challenges. Just if you had to throw out a number right now, how much money do you think you'd have to delever versus reinvesting into different property type or different assets?

I apologize. I brought up 2 concepts. I didn't make it clear in my comments, Manny, that you have to suffer through me. Everything that we're selling in 2019 that David articulated, the $155 million, we'll use to be -- solely to pay down debt. What I said then thereafter is we have a series of 2020 deals that we start now to make sure we can get them done in the first quarter. Those deals are in the early stages, I think, based on initial tax estimates and strategies, that a substantial portion could be used to pay down debt. However, I also think there's a number of those deals that have attenuating tax basis because we've owned these assets for 25 years. This is not a unit problem. This is a Mack-Cali corporate problem, which might involve having to do 1031. And I wanted to make it perfectly clear that I would only do multifamily investments and not do suburban office or Waterfront office. Does that make it clear?

Yes.

Our next question comes from Jason Green with Evercore.

Just a question on the suburban portfolio. I know you said you hope to have a proposal for the Board in September. Can you give us an update just generally compared to kind of what you guys put in your NAV schedule where pricing is coming in? And then just in terms of structure, what structure that deal might be, whether you would continue to own a piece or whether it would be an outright sale.

It's a little early to give you a definitive answer on all those questions, but I'm going to try to answer as much as I can as always. So the sales that we have in for 2019 are coming on track essentially. We usually go up -- well, David and I have talked about it recently, we might be 4% high on one, 3% low on another. It kind of balanced out to that level. And we've shown over the last -- we've been doing this now for 15, 16 quarters that we generally tend to track what our NAV is. That being said, if I choose to exit the suburban portfolio on a larger deal, I will pay a tax, I will pay a toll. Someone's going to say to me, "If you want to move all of it at one moment, you're going to have to take a number down." I don't think that number will be more than $1 of NAV. Maybe less, maybe more, the case, I still don't know yet. But it will make that determination, the Board will make its determination if I get to that point in September. So we start -- and you're new to us, I know, because you just joined Steve's team -- we start 6 to 9 months before we intend to do a transaction. We're very thoughtful about it. So we started marketing this in April. Now we're in August. We got initial feedback. We got some people looking around for funds. We think we know where we can place the debt. We don't want to own any of it. If we sell it, we think we'll be out of it. We won't own a continuing interest. But we haven't made a determination. I would make the recommendations to the Board in our September meeting. And then if they chose to, we would then transact. If they do choose to transact, I think we'd get that deal or those set of deals done by the first quarter, early first quarter 2020.

Our next question comes from Tom Catherwood with BTIG.

Swinging back to Manny's question. You said that the governor is motivated to kind of come up with a new version of the Grow New Jersey Act. But it seems like his focus, when he's not battling with Trenton, has been more on this venture capital funding program. Mike, you alluded to, kind of in coming weeks, some resolution to Grow New Jersey. What gives you that confidence that, that's on kind of the front burner? And then in addition to that, once there is an agreement, how long does it take for that plan to actually go into action? Could it actually be 6 months or 12 months out?

No, I think it would be much shorter than that, Tom. So let's look at the political landscape. New Jersey is democratically held across the assembly, and a wide majority, the senate and a substantial majority, and the governor is democratic. Murphy has -- Governor Murphy has a view that he wanted to mirror some of the success that Massachusetts did with venture capital. And he's always been -- he actually happens to have been -- I think he's a Bostonian by birth and a New Jersey by transplant. So he looked at that kind of the biotech/tech part of it and thought that was the way to go. The former program actually awarded all jobs, depending not just on salary. He wanted to be more focused upon what he thought was growth. Senator Sweeney, who runs the -- Senate President, I think has the votes to override the governor if he chose to. So what they did starting last week was had a series of senate conferences and meetings where they interview various people in the business community, presentations have been made. And my understanding is they'll meet again in September when they come back from their recess. The governor of the state had a number of line item vetoes. They will go back and see whether they can override those. I think that the governor said he wanted a program, Sweeney's wanted a program. Sweeney wants the program to be similar to one that expired. The governor wants it to basically be a basket of allocations each year. It's just a debate between the 2 of them. I think both of them agreed it won't be what we call intercompany -- interstate transfers like going from Parsippany to Paramus. Everyone knows -- I mean the jobs are the way they go and jobs are created by basically incentives. Murphy stated it. I've had conversations with the EDA chairman, the Head of the Chief of Staff. I just firmly believe the state is business-oriented, but this is just a disagreement between 3 democratically held legislative branches. So I think they can reconcile between them.

Got it. And then just...

Go ahead.

I was just going to say, so process-wise, let's assume that 6 weeks, 8 weeks, whatever it is, if they were to come to agreement, what's then the legislative kind of structure of actually getting the plan in place?

They passed a bill. They passed a bill. And that bill gets enacted into law and then the law gets administrated by the governor. No different than whether they basically elected to whether or not to have medical marijuana, change the voting ages, whatever they want, they can do legislatively, gets enacted immediately upon the enactment of the bill. Remember, this is a -- there is an agency already set up. There's a process already set up. The EDA is formed in the state of New Jersey. All they have to do is go back and say, "Okay, the new rules are you take out Page 2, put in Page 6 and we're deleting the rest, half of the book." But I think it's going to go relatively quickly. But there -- and I think -- and then it gets a little bit of a political dance between the governor -- June 30, he struck a number of line items. Some of them were political. I think they'll get back -- put back in and he'll deal with it accordingly.

Understood. Understood. Then Mike, you've had kind of 8 weeks with your new Board members. How have you been engaging with these new members? And how can you -- and can you provide an update on the status of the strategic review?

Yes. So it wasn't 8 weeks. We -- it's been basically -- I guess it's July. Maybe I guess that's true. Maybe it is 8 weeks. Time flies when you're having fun. The Board met. My new members are on the Audit Committee, so they were fully immersed in these results. We had a very long session, thoughtful. I enjoyed working with each one of them. I think it's a good Board. From the tone and texture, no disharmony whatsoever. The Strategic Review Committee, I will not be commenting on it at all, what the substantial -- other than the fact that it's formed. It is as formed as was described. It contains Bernikow as Chairman, Lisa Myers, a new director but started with us several months ago, MaryAnne Gilmartin and Frederic Cumenal. And they will begin to -- they will start getting information based on all the things we've done. I think it's a little bit of a learning process, so it'll take a few weeks to get up to speed, and then we can start digging into thoughts about which direction we should go. But we already, as you know, continue to move on. Tom, as you'll get the idea of embracing, selling the suburban business. It's just another continuation of our strategy to make ourselves more streamlined.

Understood. And then kind of last one for me. Multifamily demand, it appears strong across the Waterfront still. But there's a number of large...

[indiscernible]

Which is great. Which is great. But there are a number of larger projects in various stages of development, namely Brookfield's Hudson Exchange and Avalon's potential tower at Avalon Cove. How does this competitive set or potential competitive set inform your development plans? And is there thought of accelerating development starts like Urby or Plaza 8 to finish ahead of these other projects?

No. I think Tom, though, and you're a resident of the town, for everyone on the call, you know as well as I do, every time we open up a new project, you get an influx of new citizenry, right? Those citizens have a need for certain services and demand and things start to pop up where they didn't exist before. There's been a proliferation of gyms in this area. There's been a proliferation of new restaurants. So as you know, I mentioned there were 1,300 units that was the enclave in my list, 90 Columbus and 235 Grand, which is the old Boys & Girls Clubs site. All of them are great projects, 2 of them built by -- one of them built by KRE and Ironstate, the other one built by Ironstate and some colleagues of mine. The last one built by [ Larry Panterra ], et al. All quality projects, all rented up very well and the absorption has been better than any other market in the country. The next set of projects will go along Marin Boulevard, whether it's KRE's projects, Silverman, [ MACO ] and Albanese. And then there's an -- Lennar has another site all right in a row. But what's more important to us is, as we've talked about -- and for the people listening on the call, if you look at a map, we're adding a Whole Foods, as you know, Tom. We're also adding a school. And Lennar's building has a theater going in, a theater group, a black box theater that -- where I'm the finance chairman. We just got some funding from the city council. That's going to get done. I met with Toll this week. Toll just built a new condo project. They're about to do another condo building, which will be good for the area. But they're required to open up a 500-seat theater. We intend to put a theater similar to the Angelika in a site we're doing and add another school. This is all within 3 or 4 blocks of my office. So adding the projects I announced. And then lastly but not the least, AvalonBay, in my humble opinion, is one of the finest managed multifamily companies in the United States, without question, right? Then Equity Residential, but Avalon's particularly good on development. That's how they kind of made their mark. That's what they live and breathe. They have planned, but it's not yet announced and I won't steal their thunder, to do another project in Jersey City and [ leave it alone ]. That, to me, is a testament to the market, [ I think it for that ]. I look at -- each time a new deal comes on, it adds more people. More people gives us more services, more restaurants and fills in -- the rest of them are parking lots that we have in this area.

We have no further questions at this time. I'd like to turn the conference back to Mr. DeMarco for any additional or closing remarks.

We thank everyone who joined us from the Hamptons and the Jersey Shore, Martha's Vineyard, Bar Harbor, where else -- whatever other places you are. We appreciate your time and attention. Have a great day. Bye-bye.

That concludes today's presentation. Thank you for your participation. You may now disconnect.