Good day, everyone, and welcome to the Mack-Cali Realty Corporation Fourth 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 Fourth 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. Though 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 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 and as always please contact David with any further suggestions. As we have done before, we're going to break the call down in the following sections. I will make some opening remarks. Nick will discuss the leasing performance and a view of the markets going forward. We believe 2020 is shaping out to be a very good year. Marshall will provide insight into our multifamily operations which are really benefiting with a mild winter for construction and the strengthening of the Waterfront market regarding REIT and velocity. And David will recap our operating results, and I will close with some comments. We had a very good operating quarter in both multifamily and office as [indiscernible] positive results across all operating metrics. We had another quarter with a great deal of transaction activity that allows us to continue executing our plan regarding sales, purchase and financings. We expect the upcoming quarters to be equally robust as we execute our plan on evolving to just a waterfront company. We have and continue to…

Thank you, Mike. Across our portfolio, we posted a solid fourth quarter in 2019, signing just over 169,000 square feet of transactions which resulted in our core and Waterfront portfolio finishing at 80.7% leased at year-end. Of these transactions, approximately 30% or 51,000 square feet were new leases. And 70%, or 118,000 square feet were in place renewals. Across all core markets, our rents on Q4 deals rolled up 6.5% on a cash basis, and 19.9% on a GAAP basis. And we committed $5.41 per square foot per year of lease term. In comparison to last year, our rents on 2018 deals rolled up 6.9% on a cash basis and 23.1% on a GAAP basis. And we committed $5.88 per square foot per year of lease term. Looking back at 2019 as a whole, our core and Waterfront portfolio saw over 648,000 square feet of transactions signed, with overall cash and GAAP rollups at 8.1% and 19.1% respectively. We do not formally provide guidance on total leasing activity. We beat our internal projections of approximately 584,000 square feet by 11%. As we turn our focus to the specific markets, the Waterfront closed just over 27,000 square feet of new transactions, finishing the fourth quarter at 77.8% leased. And we continue to see a positive rent push with increases of 17.1% on a cash basis, and 27% on a GAAP basis. Looking at our current activity level, we have approximately 500,000 square feet of new transactions currently in active negotiations across a diverse tenancy mix, including financial services, pharmaceutical, co-working and shipping to name a few. The improvements we have made and continue to make within our Waterfront development are translating to steady interest in touring activity. Looking ahead, we have a limited amount of lease roll with only 61,000 square feet expiring in 2020. And as a result, we expect to make continued gains as we improve the overall occupancy levels on the Waterfront. Our Suburban portfolio also posted a strong fourth quarter. Specifically, we executed over 141,000 square feet of transactions, achieving a positive rent push with increases of 5.3% on a cash basis, and 19.2% on a GAAP basis. Turning to 2020, we have over 403,000 square feet expiring in our Suburban portfolios of which over 128,000 square feet are included in our Morris County portfolios, which will be sold this year. Of the 275,000 square feet remaining in our Suburban portfolios, we know that 59,000 square feet, or 21%, will vacate. We're confident in addressing the balance of this rollover as we are already in active negotiations with over 229,000 square feet of transactions across the Suburban portfolio. With that, I'd like to turn the call over to Marshall.

Thanks, Nick. Roseland's 4,287 units same-store portfolio on a GAAP basis experienced a 5.4% quarterly increase in NOI, generating annual NOI growth at 3.4%. The increase in annual NOIs resulted at 2.2% increase in revenues, offset by a modest 0.2% increase in operating expenses. The largest contributor to revenue growth in the portfolio were URBY and Jersey City, [indiscernible] North Westchester. Including our renovation property, same-store NOI growth for our portfolio was 10.1%, with a 6% increase in revenues. Our active renovation programs at Monaco and Marbella represents a complete repositioning that is modernizing the units, common areas and amenities. Initial tenant feedback has been positive as reflected by re-leased units achieving 18% rent premiums. During the quarter, Roseland completed the disposition of the Alterra and Chase communities, which completes the asset swap in suburban Boston for Liberty Towers in New Jersey City at 648 unit high-rise community in our core residential geography. Following the swap and along with continued improvements on our operating portfolio, Roseland has an estimated NAV of $2.25 billion. Mack-Cali's share of this figure after netting out Rockpoint participation is $1.79 billion, or nearly $18 per outstanding Mack-Cali share. The transactions discussed over the last 4 years are reflected in the vastly improved composition of Roseland's NAV. 76% of NAV is on the Waterfront; 81% of NAV is in operating or in construction assets. And less than 1% of NAV is in subordinate interest. The company's 1,943rd in construction portfolio is projected to generate $62 million of stabilized NOI. Initial deliveries of 1,192 units are scheduled within the next 12 months, including the recent start of lease-out at The Emery at Overlook Ridge. Initial 4 weeks since opening, we have signed 38 leases representing 12% of the building at rents in excess of our [indiscernible]. As…

Thanks, Marshall. I have a few brief highlights before turning the call back over to Mike. The quarter came in largely as expected, and there were some key trends that continued to emerge that give a glimpse of what the company will look like after the disposition of its suburban office assets. We reported core FFO per share for the quarter of $0.44 versus $0.45 in the prior year. Included in the fourth quarter was $0.03 of FFO related to the sale of our URBY tax credit. As we projected, of this cash same-store NOI turned positive and increased by 3.5% in the fourth quarter as we now end over 3 quarters that have the full effect of the 2018 waterfront move-outs. Residential same-store NOI was plus 5.4% for the quarter, and we finished above our initial and revised guidance ranges due to better than expected tax and operating savings. On the transaction side, we dispersed of 2 Suburban office buildings during the quarter, our building in Neptune, New Jersey, for $26 million, which was fully occupied and traded at $145 per square foot; and 5 Wood Hollow in Parsippany for $29.2 million, which was only 65% occupied at closing and traded at $92 per square foot. These assets were part of the 6.6 million square feet of Suburban office dispositions announced in December. We completed our 1031 reverse exchange with the sale of Alterra and Overlook Ridge multifamily assets in suburban Boston for $411.5 million in the quarter. And closed the sale of 2 development parcels in Philadelphia that we chose not to develop for $17.9 million. Turning to the balance sheet. During the quarter we paid off our sole remaining term loan with the availability on our credit line. Our corporate debt now consists of $300 million of…

Thank you, David. In closing, as my colleagues have outlined, I continue to believe we're set up to have a solid 2020 from the execution point of view with results showing up in the years going forward. We have a good deal of work to do, which we are doing each and every day. Our focus, as David outlined, is now 100% of the Waterfront, which means growing our multifamily business. For example, we intend to exit our D.C. joint ventures and have made great progress on those transactions. We expect to have them done this year. We have exited the land sales in Philadelphia in the last 2 quarters. In the land sale sites in suburban New Jersey, which we don't expect to build on being marketed currently, with several expected to close the upcoming quarters. All of this goes down to pay down debt or fund our development, but it really contributes to our focus on what we intend to do, which is focus on the Hudson county multifamily market. We additionally are in the process of selling the remaining portions of our Boston assets this year. And we look forward to purchasing additional assets at Hudson County to complement our development, if available. We are very excited about our operating portfolio and how we continue to grow with excellent new products. The real key to our plan is creating a sense of place on the waterfront. We can see real change everywhere we look. I'm confident the total effect of our coordinated efforts on development and the remodeling of our assets, plus the efforts from other developers and office retail multi will produce excellent returns in the short and long term for Mack-Cali. One last point. Our Chairman Bill Mack turned 80 today. All of us wish him the best and may he have decades more of healthy and happy birthdays. As we all know, Bill took care of the wealthy part quite a while ago. Unfortunately, this will make Bill subject to a mandatory time and age policy for directors of 80 years old of age, which means he will not be able to continue to serve on the Board after our 2020 Annual Meeting of Shareholders. From a personal note, I can tell you he will be missed, his acumen, his intelligence, his wit and charm, is very difficult to replace. We wish him the very best today and going forward. With that I could take some questions. Operator, please.

[Operator Instructions] We'll now take our first question from Jamie Feldman from Bank of America.

I guess seeing a lot of volatility in the market this week, a lot of fears out there, can you just give us a better sense of starting, I guess, with the guidance, what's kind of baked in? What's kind of done when you think about where your occupancy needs to be on the office side to hit your same-store numbers? And then similarly with the asset sales. I mean, I know you said you've got Parsippany and Giralda farms under contract, but just how can we kind of handicap certainty to close on some of these given the market seems to be changing pretty rapidly? And if you could kind of talk through some of the other -- you laid out the 4 or 5 other buckets, how do you feel about that?

Again, this is part of our strategy. I'm going to go first and David will answer the questions about the same stores. Our strategy was done in anticipation of the fact that we didn't want to wait till the last minute to sell the suburban assets. We were thinking about where replacement income is coming next year for the multifamily. So we take a dip this year in earnings. And as great as people think, the timing will be toward the back end of the year. It will have an effect -- less effect on cash flow because you're selling relatively high-income assets with high costs associated with them, leasing CapEx base building, so on and so forth. And moving into multi, which has a better format, especially if it's brand new. But we took the view when it was really set up about the election that we wanted to be in front of the curve. We felt that 2021 had the potential from a political point of view to be somewhat disruptive. So we took the bold step of saying let's sell the asset in advance of the replacement income. Regarding Parsippany and Giralda, we have a hard deposit. I talked to the buyer weekly if not biweekly. He's confident he's close. His finance has been arranged. We expect to close in the next few months. The other sales that we've had, the Wegmans and the George Washington Bridge, I have the same view on. One of the buildings got hit by Princeton University, a buy-sell, so we felt that will close. With the other ones, I think we're close to certain buy groups. The market still remains very open for financing. Rates have dropped to a unbelievable low. Spreads have actually narrowed to some degree as money wants to go into fixed income. So I think the financing will be there. I think I'll -- we don't have any really discombobulation from tenants. So our view is, as fast as possible, get it done as quickly as possible. You have to leave a few dollars on the table. We're okay with that because we move to a better level. And as we pointed out, we have a little bit of a cushion. We have 947, 950, 906 is [indiscernible]. We have 44 million around 5%. If we had to basically take it, we get to the same place. But this was a strategy with the -- the CIP is coming online. As Marshall pointed out, the first multifamily got delivered in Malden and Revere. Short Hills should be the summer. End of the summer is Port Imperial on 2 different projects. And then next year is Jersey City. And all those should be great winners for us. I'll turn it to David now to finish the conversation.

So with respect to guidance, we feel like we set a very conservative mark as we always try to do. And specifically on the office guidance, baked in at the midpoint is only 135,000 square feet of lease execution, 65,000 of which are already out for signature. As Nick also pointed out, we only have 61,000 square feet of roll this year, and most of that is weighted towards the end of the third and fourth quarters. It is also interesting to get from the 165,000 -- or to get from the 65,000 to the 135,000 with just one lease that we feel pretty good about within a pipeline of deals that Nick's looking at, over 300,000 square feet, we would hit our guidance. And our cash same-store NOI guidance is pretty much baked for the year based on what we already have signed and in place.

Okay. That's very helpful. And then how do you think about distribution or dividend coverage after -- if you get to this new run rate of FFO? And then do you have any thoughts on what AFFO might look like at that lower level?

Jim, it's Mike again. AFFO, as I said earlier, will probably not as greatly affected as FFO was, because you're selling assets in a suburban business which always had a high-income level, but the net was lower because of CapEx, TIs and leasing commissions and vacancy, which would then sometimes be prolonged. So we pay $0.80. I think we'll continue to pay $0.80 foreseeable future. We need the $0.80 for tax distribution reasons for next year. We look at our model for 2021 and we clearly cover the $0.80 by a great margin. So this is a slight blip in 2020, which gets recouped in 2021. Don't expect us to have a dividend change in policy.

[Operator Instructions] We'll now take our next question from Emmanuel Korchman from Citi.

Just thinking about leverage and the fact that these are higher-yielding assets, not -- irrespective of the CapEx you just talked about, how do you actually bring down the leverage, especially with new developments that are now slated to come online at Harborside?

So Manny, we always talked about that we would need to do a recap at some time in the future. We needed to do some event to basically recapitalize the company. I've always argued that we need to do it once we had a portfolio set. I think we're getting very close to having that moment when the portfolio will be set. So after we sell everything, we're down to the 28 assets and maybe goes to 33 or 34 with some other acquisitions, it will primarily be multifamily that has been a good performer, excellent results, and actually look at the market and say, "Hey, this is numbers that will continue to grow." We also believe the Waterfront is at its turning point and also will grow. If not, we also have, by the way, just for the records, we have 2 buildings up for sale on the Waterfront currently listed. So we're looking at exiting that if we get the right price on each one. At that point, you'll be looking at a multifamily portfolio, it will be well into the 70% of your NOI basis, maybe even higher. And that's the point of view to say, okay, private recap public hits at the numbers are and we have a standalone business. When we invested in office over the years, the question was always we'll be getting the right result. We were able to improve cash and GAAP numbers quarter-for-quarter for 5 years. But that doesn't mean it was a great business to be in because it was a difficult business to transact. The Waterfront from our experience in the last 4 years has had excellent results, both in rental growth and velocity and appeal to tenants. So that's a business that we think going forward will be [ levered ] highly on. We have a number of pieces of debt that we can pay off. And we can take either equity partners in it, so with the joint ventures, or we can take it in as through additional equity insurance and get down to a real level. But it'll be a real company that you want to invest in as opposed to a business that was a hodgepodge included Flex, Suburban, the [ SPAD ] ventures and a real estate business that just wasn't filled out. So it took us a while to get there, but I think we're getting to point now that you can deal with the leverage going forward.

And David, sounds like you guys think that 2020 will be a soft year for AFFO, but assuming that all these sales happen through the year and developments are starting even though you've got some de-levering, is 2021 not going to be lower? Is it going to lower on FFO, but not AFFO? How do we think about sort of trajectory just going a year forward?

Yes. Thanks, Manny. So depending on the timing of asset sales during the -- as we all know, if we sold everything in the first half of 2021, it wouldn't be that bad. So the first thing that is going to factor in on the question is when we get ourselves executed this year. But you're correct, as we head into next year we'll be developing, that won't really affect our AFFO, but what will be coming online is the $1 billion pipeline that Marshall talked about. We're projecting about a 6.2% yield, at $60 million of NOI and with debt at current rates we're probably projecting a little high given what's going on, but you get about $0.40 a FFO. So the way Mike and I really think about it big picture is if you sold, let's use round numbers, $1 billion of suburban office assets to the 9 cap paid down debt at 4 we'd lose $0.50 FFO on a run rate. We're going to bring back on $0.40 of apartment FFO, have some G&A savings in our organic growth. So when we place that $0.50 on an annual basis with apartment NOI and some real savings in EBITDA, and then to Mike's point, what he is trying to drive home, are dropped down from FFO this year was a $1.62 to $1.02. On a residential side, it's maybe $10 million to $15 million tops as you go or $0.10 to $0.15 a share on that portion FFO to AFFO as you go forward. So '21, if we sell late, yeah, would then become the trough year. So let's wait to see the timing of the sale this year, but '21 could very well be the trough year. But then as these developments come online and stabilize, definitely on a stable basis we get up to AFFO levels that are much higher than they are today.

We'll now take our next question from Derek Charles Johnston from Deutsche Bank.

I mean, just quickly getting back to leasing, didn't really talk too much about it, but how is leasing traction with life science companies? Any news on that front that you can discuss? And I guess the other half of this question would be with only 61,000 square feet of Waterfront lease expirations as you mentioned a couple of times, does the occupancy guidance feel beatable or at least conservative this time around?

It's good question, Derek. Given everything that's going on, we did take a conservative bend to our numbers which I thought was appropriate. We have been aggressive or thoughtfully aggressive on leasing the last several years and we've come and hit on numbers, but not exceeded them and people have expected us to do more. So this year given the sales, which are obviously dramatic given the nature of exiting the suburban portfolio, we took a very, very jaundiced view of waterfront leasing. There's a lot of things going on. If you'll give me a minute, I'll give some updates. So as you know Columbia Property Trust are building nearby their Persian division, which is part of Bank of New York, very large operation, closed half of the street's trades, basically extended out for a extended period of time. Bank [indiscernible] in the market, we look to basically take them from a building. They decided to stay, but they are expanding some jobs in New York. AIG, which is [indiscernible], but I think the deal is complete, is going to move 3,000 square feet into the Goldman Sachs building. We were very close to get them, but we didn't have 3,000 square feet can take what Goldman did. We felt good about that. Our buildings showed incredibly well and we know what the price point was. So you look at a couple of trades like that with the financial institutions, and AIG is moving off of Pine Street, they sold their building and they -- I think they're doing what they call the Golden Express, they're moving into the World Financial Center. And then using the ferry as a means of going back and forth. And then moving jobs from suburban New Jersey to Jersey City, all good signs. It was a guy who knew the business, understood the market and knew how to build the platform. We have on our books a couple of tenant expansions, which we'll announce going forward, which are significant. People are expanding in our place, want to do 10 to 12-15 year deals. We have a couple of tenants that we have signed smaller spaces halfway here quarter 4 companies that are also growing. Some people have indicated they want to expand by far too. We have not really put those numbers into our guidance. We just felt that given past history it's better to have and announce than announce and not have. So to answer your questions, we've actually gone on a conservative bend. We also feel given all the other noise about it we wanted to make our numbers easily and have more upside potential than downside.

Okay. Great. That's helpful. And then just on the multifamily development opportunity and priorities, and specifically if you can address the potential and the plan of the residential land bank that we don't really talk that much about?

Right. So one good thing is the price of land continues to go up in the metropolitan areas that we deal in. So whether it's Weehawken and West Weehawken, Hoboken and Jersey City land prices have gone up and [indiscernible] partnership by almost 100%. There were 40,000 when we first started together 45 and they probably totaled 90 going to a 100. And this is for straight rentals, not condos. You may ask why that is. What their rents have gone in our experience as a partnership from $40 to $54 in the last 5 years. If you take the $14 on base rent, even with construction cost which have gone up, it still gives you lot of room to pay more for land. Our holdings, we have concentrated ones around Harborside and obviously around Port Imperial. And we've built out what we're going to build in New England for the next development deals and then all the ones foreseeable will be in Hudson County area. So as we pointed out, there's a building outside my office window, so those who have visited the office called Plaza 8. We got approval from the city to go forward with a 640 units project, a spectacular piece of land, great returns. We've owned that land for a long period of time. On URBY II, which is really the project next to URBY, we have a view about starting that going back to the city and getting site plan approval, which means the zoning is already been baked, it's already been pre-approved. We just have to worry about getting the site from the new guidelines where we want to place exits and egress and so forth. Marshall has done a great job of getting a project moving forward called the Park, which is one of the end of the Weehawken site. It's literally 100 yards maybe from Whole Foods?

Right.

And a light rail station. [indiscernible] and Hoboken comes maybe a quarter mile away. Beautiful site, 270-degree views of New York City. Thinks will be real winner. So we had a project and it's built around a series of public improvements that we opened it for parks, swimming pools, softball fields and so forth. Those are the next 3 projects. After that, 107 Morgan, likely Plaza 9, maybe Plaza 4A, there's a couple of the sites in Port Imperial. And that will finish us out in the next 3 to 4 years.

We will now take our next question from Steve Sakwa of Evercore.

I just want to circle back maybe on Jamie's question about just maybe, Mike, the confidence level of getting the suburban sales. I know you -- I can't mention names of buyers, but just how deep is the buyer pool for some of those different pools that you talked about? And the types of financing and equity and leverage that they're using to purchase these?

The pool is actually relatively deep. I mean, not truly deep like 75 names, but maybe a half dozen, like 15 names. We've done business with a number of them before, so we have a history of knowing what we can and can't accomplish. The key is to look at it in totality, Stephen. We had about a $1.3 billion to do when we started and we've done about $200 million already in various sales in the past year. Of that remaining we have a big chunk with 2 other farms in Parsippany and as David mentioned in his remarks, we have several other buildings that are already been projected for in the box. So of the remaining $1.1 billion, we have about 550 done, give or take. So we're below the 50% category. That's assuming the contracts stay. One of them is with Princeton which hit us in a buy-sell. Others have serious deposits from people that have arranged financing. I feel really good about the first 55%. The last 45% I fielded a call last night at 9:30 from a buyer who wants to buy an asset group. We have another asset we think is really going to get done. We're only down to like 15 buildings. I think we can get 6 or 7 committed to by the next board meeting, which would leave us with 6. And that 6 I still feel very good about. I think we have good prices. We started this a year ago, we worked on it judiciously. I would point out we started with 295 buildings, we're going to get down to 30. We've never not sold a building in the last 5 years we've been as a team. We bring it to market, we get it done, one way or the other. So I still feel good.

And then maybe, David, just taking a step back and trying to just think about cash needs. I realize some of this will be mortgage or construction financing, but as you sort of think about 2021, it may be hard to go out to '22, but as you think the next 2 years, what is your development spend at Cali share looking forward?

I'm going to go quick, then I'll turn it over to David, Stephen. We had $70 million disclosed last quarter, it's $47 million disclosed this quarter. So it goes down by about $4 million or $5 million a month, which we handle from cash flow. So put that aside, that's all of what's in the ground already. We basically finished and as well as capital. And I'll let David talk to you about the 3 projects.

Hey Steve. So we all sat closely with our Roseland partners and we modeled out what we call the next wave of development. So beyond what's in the pipe, we have another $800 million our share roughly to come that's URBY II. You guys all know URBY, Plaza 8 out Mike's window and the part parcel up in Port Imperial, Weehawken. So based on what we call within our residential bucket kind of our noncore asset sales, that includes hotels, things that aren't in Jersey, so Boston and D.C., we think we have that entire equity covered without even drawing down this additional Rockpoint equity commitment. So we think on the capital side in Roseland from cash flow within that joint venture and the recycling of assets, not in our core geographies, we have the equity in place and when you sell assets at NAV that's equity at NAV to develop out that next wave of developments.

We'll now take our next question from John Guinee from Stifel.

Little bit like Casa Blanca or on the Waterfront, I have seen this movie before. Basically you guys say you're going to get down to 22 assets, multifamily assets, 6 office assets. And then you imply 5 or 6 acquisitions because of necessary tax protection. David, of the $946 million of asset sales, how much of that will have to be reinvested in -- via 1031s for tax protection?

John, it's Mike. It's about 85% to 90% of it's going to be paid under debt. It's maybe 10% to 15% we're struggling with. We may have a little bit of issue about where the taxes come out. We may have to invest. That's like $100 million out of the $1 billion or maybe $150 million, not much more.

But then you also imply 5 or 6 acquisitions? So you...

No, we didn't say that. No, John, we didn't say that. We said that we had 6 office assets, 28 -- 22 multifamily assets, so a total of 28 that gets us down. And I would think that I may sell waterfront asset that may have tax implications, I may have to buy a building for it. We'll get down to 32, 33 assets at the end of the day, not much more.

And when you're talking about tax protection, there's 2 tax protections. One is tax protecting the common shareholders via the REIT structure that is...

They're common.

What?

It's all common, John. It's not unit, it's all common. This is -- these are deals that we owned for 20 years and I have -- look, at the end, John, to give it a more expansive answer, when we first started we get to basically move things around. It's easier because you start with a lot of assets. Then you get down to the last couple of dozen, you move your tax basis problems into a select few. When I sell those few, I still have the same problem, which I just postponed that we're a REIT issue, not a unit issue from 3 years ago. And now I have to deal with it. I just have to move it to something else. It's not a big deal. But we've done as it [Technical Difficulty] It's REIT, not [indiscernible].

Yes, but we want -- the discussion really is you can -- when you do a special dividend or a dividend, you're only [ dividending ] out your gains. When you do a 1031 to protect your basis, you have to reinvest 100% of capital. And there's a huge difference between the two in terms of your sources and uses. And what I'm getting at is how much of this is going to be tax protection that ends up being a transfer 100% of the capital into a new asset. And what you told me is only about $100 million or $150 million, is that correct?

That's correct, John. Max, could be less.

Then the second thing is, I think you mentioned will be a real company which someone will want to invest in. In the multifamily world that usually means a 5x net debt to EBITDA or less than a 25% debt to total enterprise value. That's really what it takes to get on the A list in the multifamily world. How do you get down to 5x net debt to EBITDA or below and how do you get to a 25% debt to TEV?

Excellent point, but, John, everything is done in sequential. When we started, we weren't even close to be the multifamily company. So now we have a portfolio that actually looks like a multifamily company, performs like a multifamily company, but has the wrong leverage. I think you would grant me those points, right? We have -- ours a relatively excellent development yields, and you expressed that in the past, and we've had good, solid rent growth in our markets over the last several years. The question is structure, what's the right leverage? What's the right term? We'll do it -- when it comes up, we'll do it sequentially. The point is, would you rather have us own a bunch of suburban assets and stay a suburban company, which the answer was no. We've been able to preserve capital, grow NAV, grow FFO, AFFO, and get to the right spot. If we're not the perfect company, then we'll be sold and will be acquired by a public or private entity who will rent us. But they will not acquire us with $1.3 billion or $1.1 billion of suburban assets. So a gating item, which is a term I like to use, is you need to exit the suburban, get to a box which has only 6 or maybe less waterfront assets, we may sell 1 or 2, have a larger multifamily portfolio that has gone from land to CIP and CIP to stabilize. And someone says, "Hey, I'm at a point now where I will purchase that for a number that actually is beneficial to the shareholders." Sticking around waiting for the law to help you has never been a good strategy.

Correct. So that's a great segue. So net asset value is your goal, it's your board's goal, it's every shareholder's goal, it's everybody on this call's goal. Everybody wants to see the share price get up to NAV, give you an acceptable cost of capital run the business. Do you have a time frame at which you're going to either get there or throw in the towel?

I wouldn't call it throwing in the towel, John, it's a little defeatist. But the question is, I think we made the right steps. So we went and have done an excellent job of pruning the asset portfolio and building multi out. We made a bold statement. I said it last year, I was going to get approval and we talked about it a couple times on a one-to-one basis that we would sell the suburban. We're doing that. We were the largest suburban company when I took over, 30 million square feet, Mitch Hersh, my predecessor touted the fact that one of the largest companies in the space, whatever. We're exiting suburban business. Exiting suburban business in 2020 with I think a good degree of certainty. At that point, that's the inflection point. When the suburban is done and you're really left with a multi business, which has excellent growth potential, but maybe as you point out so eloquently, not perfect for the public markets. And hopefully a waterfront business, if we're good, maybe we've cut it down a little bit or at least up to where therefore sellable, or it's producing the right income, that's the inflection point. I wouldn't call it the towel, but let's use inflection, if you don't mind.

So is it fair to say that your NAV and your supplemental sort of north of 30, by the end of 2020, you've gotten -- you've sold the suburban assets. That inflection point is in NAV of north of 30 and you continue business as usual. Or at that point in time you, let's not say throw in the towel, but you look at a different alternative kind of the $30 stock, right?

100%, John.

2020?

100%. 100%.

100%?

100% on it. 100% correct. But John, can I do a little math with you that you've done with me before? When we started, people used to judge us by square footage. We were worth $100 a square foot, or $120 a square foot for suburban, that's how they valued us. That metrics has gone. Let's assume we're done, right? We've sold and we agreed that we get rid of the debt and we're really left with just the Roseland NAV and the office. Let's do a simple math. We have 5 million square feet of Waterfront office. Picking up, let's say it's $200 a foot, which is $56 lower than we charge, then we have it as NAV, which is substantial, it's 15%. At $300 times 5 million square feet, it's $1.5 million. We have $400 million of secured debt. We will have no other debt. As we already explained, all the other debt is gone. That's $11 of NAV at $300. Okay? $11 you add my Roseland number, if you think it's a good number, which people have indicated it is, $11 plus $18 is $29. It gets you a $30 number. If you say, Mike, I think you're whacked I don't think Roseland is worth what it's worth. I said okay. But if that's the case tell me where we're trading at $25 where if you take my NAV for the Waterfront and say, okay, I'm good on the $300, but I want to buy the company at $25 that means you're buying a multi at a 6.5 [ CAT ] yield with an unbelievable pipeline that is actually robust. They start to become a clearer view for someone to have about value. It's not modeled by saying I can get to this, but I have to buy $1.3 billion of suburban, that suburban is gone. It's a clear picture. It's better, it's a better strategy. We had 2 firms that came in, gave us reports and both of them said, exit the suburban business, which I've been advocating and they agreed and we're doing that. But to your point this is -- this train is going down a station and the next station is it has one, two names to it, it's either you're trading at NAV your normalized company or you're no longer listed on New York Stock Exchange.

We'll now take our next question from Daniel Ismail from Green Street Advisors.

Just given this, just following up on the last question, can you talk about the appetite out there for a full NAV level deal these days?

I'm sorry. I couldn't hear you, Danny. You need to speak -- say it one more time please.

Yes. To follow up on the last question, just given the recent headlines and disposition plan, can you talk about the appetite out there in the market for an entity level deal these days?

We don't see it. We don't get inquiries that make sense to us. We get people come in and say, we want to do -- I believe 4 questions we ask people when they come in and everyone takes a meeting with us, because they all say they took me because my calendar is open for anyone who tells me they want to meet. The 4 questions are very simply, what's your range or price? Where is your equity source, is it committed? Your debt to replace the amount that -- when we have a pretty good structure, you can assume most. And fourth most importantly is it a corporate or is it a real estate deal? And we've never got anyone who answered the questions correctly. When we get people to come in and say, well, we want to spend something out. The shareholders look at value. This will trade up. That's not the way we want to -- want the NAV. We think it should end and start with cash. Someone coming in and say, here's the price, we'll take this off your burden. It's earlier than you expect, but it's a couple of dollar discount, instead of getting the 30, you get something less, we're rational. We're totally open for business. But I think that becomes more clear and more available to people and have them in a kind of an activity in the general in the REIT space when we exit the suburban business. Because as you know, Danny, it will make us cleaner and easier to analyze, 30 deals, right? 30 deals and all of them averaging over $200 million and not that complicated. No -- probably no ground leases of any consequence. Not -- no major JVs. No subordinated interest. We've done a great job of cleaning this thing up.

And at the shareholder value committee, I believe you've discussed before potentially, I believe your words were disemboweling the company if it's not trading your NAV. Just wondering, the liquidation on the table, let's say, a year of two from now the company is still not trading at NAV?

100%. I just said it to John. I mean, we look at it and the board has a view that we have a commitment to get the highest NAV. The strategy that we inherited was a suburban strategies that was not getting the right number. We've used our resources to create a multifamily business inside of it. We've gone from 295 assets to 30. Of those 30 I think only 4 or 5 are ones that we originally started with. It's a completely different company. The one thing we couldn't correct was leverage. We needed the leverage in order to be able to do this box, right, because we haven't gone out and issued equity in a long time. We've paid down debt. And even though we'll have a -- to say 10x debt level, it will be secured, no covenant base. We've covered interest coverage by 3x. I wouldn't say we're [indiscernible] proof, but the walls are lot higher than what when we first started.

And maybe just one for Dave on same-store NOI guidance. Can you talk about how office expenses should trend? And are you expecting a continued benefit on a same-store basis from overall expense growth?

Thanks, Danny. Yes, so one, I read your note and tried to clarify my prepared remarks. For same-store NOI guidance for 2020 it's just the Waterfront. And the revenues and expenses are really in line. It's not driven by expense savings next year as the expense growth about inflation or what inflation should be at 2% to 3%.

We'll now take a follow-up question from Jamie Feldman from Bank of America.

I just wanted to dig a little deeper into the Waterfront leasing pipeline you guys mentioned. I think you said financial services, co-working, pharma, shipping. Can you just talk about the size of some of those deals and what the holdup is? I think you've talked about all of them in the past. And is it contingent on growing New Jersey and if we do see that come into effect, those deals finally get signed, or is there something else holding up decision-making?

Couple of them go across the board, Jamie. This is Mike. I'll turn over to Nick in a minute. The shipping company was clearly based on Grow New Jersey. They've been hanging around for a while. They're moving out of another port city to Port Elizabeth, but want to have the headquarters in Jersey City. The pharma company is just strategically making its decision. They take their time. It's a relatively decent commitment. It's about 100,000 square feet, maybe 80 to 100, so it's either 2 to 3 floors in a building that we've designated for them. Few others are just expansions that just fell through the process and we're very close on those. One of them is a co-working company that's already the -- wants to expand, we've been trading paper on it. So we're relatively long. But Nick, if you want to add to my commentary?

Sure. As we talk about sort of the low end as David mentioned, obviously technology, online gaming, they're looking to expand by 4 or 2. We've got engineering, financial services in that as you call 20,000 to 25,000 square foot range. And then as we move towards the high end, as Mike alluded to, pharmaceutical, shipping, construction, all north of about 50,000 square feet. So we feel pretty good there and that would be new leases, right. And then we also are looking at some renewals and expansions in the insurance sector, technology, financial services. So we just -- that's the reason for the positive.

And Jamie, one last comment adding to Nick. We're also getting a good bid from smaller tenants for the first time that I've been here 10,000, 15,000 square feet. We had about 6 of those, which add up to about 90,000 square feet, which is significant and they're coming from people that either have moved to Hoboken or Jersey City area, living at Brownstone that want to run that business in a close commute. We also had expansion from the gaming companies that operate their platforms in this area. So William Hill [ draftings ] and others that expanded with us. That's the type of tenants we're seeing lately. Operator, next question I think.

We'll now take a follow-up question from Emmanuel Korchman from Citi.

It's Michael Bilerman here with Manny. Mike, you talked a little bit about and I think in your comments to an answer you said we had 2 parties in here recently, which I assume were 2 parties, potentially a multifamily company and a private real estate company, that were examining a potential transaction. Can you just sort of elaborate a little bit more on that process that the Board went through and why you decided not to go down the road and what were the considerations?

No problem. Actually not what I said. I had 2 consultants that came in that was Goldman and Merrill who basically gave me advice. But your question has still got it, Michael, and it's worthy of an answer. I'll be happy to answer it. But to cover the whole thing, Goldman and Merrill both advised the company. Goldman advised a special committee. Merrill has already been adviser of ours, also presented a special committee. Both made recommendations about strategy and process. Both had informally talked to the marketplace on a wide basis and solicited degrees of interest and people when it came back that the gating item was -- had been and always had been the suburban leasing -- suburban office, excuse me. That was why the Board made a decision to exit the suburban market the way we did and made the announcement. Regarding what you've talked about and what has happened was I was approached by Tom Rizk, it's documented in the letter they published last Sunday. Rizk came in to see us. I gave them the 4 questions that I alluded to earlier. I asked him very simply, Tom, I'd love to deal with you. I've also had meeting with him before about buying assets. He has never brought an asset from us yet, but I said to him could you please identify the price. He wasn't willing at that moment, tell me the equity sources which you're going to raise it. Then he commented he could get it from a bank and question was about structure and it really alluded to the fact we wanted to do -- well, I would have thought it would have been a complicated real estate deal. He also expressed interest in trying to get to [ Max ] to rollover…

Sort of like I know a guy who knows a guy who knows a guy that I may be able to get this thing done.

Yes. And to be candid, that was the response, and as you know, you covered the industry as long as I have, it just wasn't a rationale process. But look, we're open. But the one thing I would comment, he did get a meeting with me, he got a meeting immediately as did [ Kushner ], as did Bow Street. You call up, you say you want to come in and talk. I make my schedule open for you, but you've got to have a real deal. Otherwise, there's no reason to have a conversation.

And in...

The other point is we -- I'm sorry, I'll go after you, please.

Wishing Bill Mack a happy birthday. Who are you going to -- are you downsizing the Board or is that going to be a vacancy where you're going to add a new member to the Board?

We're not allowed under Maryland law to basically downsize a Board. It's surely out of it, so Bill Mack's seat will be open. We'll be nominating someone new for that spot.

Will it be a insider or is that not going to become an independent seat?

I can't speak for the board. I'm not the nominating governance committee, but if you ask me on a personal note, it would be highly unlikely there would be an insider, extremely unlikely.

Okay. And then as you think about executing the suburban asset sales to effectively become a multifamily in Jersey Waterfront office company, is there any reason why you wouldn't be sort of pursuing a potential sale of Roseland today or a recapitalization or spin of that? Or keep the sale the Jersey Waterfront office business to a potential buyer who may see that as strategic to their other holdings? I'm just wondering why not try to do everything today rather than sell the suburban and then wait and sort of see where the stock is relative to NAV if you know ultimately you want to get there, why not try to do all the pieces at once?

That would be a little complicated a lot to do putting that aside. There are some serious tax implications where you can't do it. So you need in order to get out of the tax problem we have which is assets that we've owned for 20-30 years that like the building I said which has the basis of $100 million in a value of like $800 million, you need to either do a spin and a sale at the same time or a sale and a sale at the same. You can't do one and the other. We've had the complication with both Goldman, Merrill, other advisers came back to the same situation, get rid of the suburban, then you're left with options. So if you need a sell and spin, sell and sell, stay, one of the 3 options which is what we're planning to do. But it becomes an option because normally we would -- do we think Roseland is saleable? 100%. Do we think the office on the waterfront as we cut it down is saleable? 100%. Can we do it right now independent of doing the suburban? No. I need to get rid of the suburban first, repay the debt because I wouldn't be able to do it under the covenants of the banks and the bonds, basically do the sale and the spin like I paid them off which means they'd have to divert sale proceeds from one to the other and buying -- shareholders have to wait and so and so forth. This has been considered well thought out the easiest and the most direct way to get to the right spot.

Right. And you just have to roll $150 million from a tax protection perspective from -- relating to [indiscernible] question you have to roll...

So you have to roll a little bit possibly, but, Michael, it goes into Roseland which is series of rolls. I mean, I rolled about 10 deals into Roseland already which has tax-based issues, right? I mean a lot of the deals, the lands we bought with -- deals that we had varied tax-based issues, right? So we already have that problem. That's why we need to sell Roseland in a spin or a sale as part of a dissolution as opposed to keeping it. If we just sold Roseland today and let's say someone said, oh, we got $1.8 billion, we wouldn't get $1.8 billion, we would get $1.8 billion that would be gross on NAV and we will be paying a very large tax bill. It could be as much as $1 billion, Mike. My CFO is smiling, I think it's not -- but it's about the right number and that tax bill will be paid by the shareholders at the entity level which means I can't distribute it to you. If I sell it and sell it with at the same time and it's dissolution I give you money and you don't pay the tax because it's left behind because the other guy picks up the basis issue.

Yes. Okay. I appreciate the color, Mike. Yes.

And I hope you have a great week of playing music next week.

I got it all for you, Mike.

I look forward to it.

Ladies and gentlemen, this concludes today's question-and-answer session. Mr. DeMarco, I would like to hand the call back over to yourself for any additional or closing remarks.

As always, we thank everyone for joining us. We know it's a time-constrained world we live in. We look forward to seeing hopefully all our investors next week at Citi Bank. Hopefully, the weather will be perfect and we'll be in a perfect mood. Everyone, have a great weekend. Thank you.

Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.